Shakeout Or Top? Here’s What Bitcoin SOPR Says About It

Bitcoin price has now declined to $56k; does that mean a top is in? Or is this just a shakeout? Here’s what the SOPR indicator says about it.

The Bitcoin SOPR Indicator

The BTC Spent Output Profit Ratio (or SOPR in short) is an on-chain indicator that estimates whether investors are selling at a profit or a loss.

When the metric’s value is above one, it means coins that were moved during the period were sold, on an average, at a profit.

While SOPR values less than one imply the overall market has been selling at a loss during the particular timescale.

If the indicator starts trending up, it could mean holders are now realizing their profits and a correction could soon be coming.

On the other hand, a downwards trend implies sellers are moving their coins at a loss, and holders with profitable coins may be sitting on to them in hopes of further price appreciation.

Related Reading | Bitcoin MVRV Shows Top Isn’t In Yet, BTC Still Has Room To Grow

What Does The Indicator Tell Us About Tops And Shakeouts?

An analyst has created a chart in a CryptoQuant post that highlights the trend in the value of the indictor over the past year and a half.

The trend of the SOPR during the early 2021 run versus now | Source: CryptoQuant

As you can see, above are the graphs for a few different versions of the indicator. The STH SOPR and LTH SOPR metrics show whether short-term and long-term holders, respectively, are taking profits or not.

The separation between the two types of holders is done on the basis of coin age. Coins that haven’t been moved since 155 days fall into the LTH category. Anything below that is in the STH territory.

Now, looking at the above chart, it seems like all the Bitcoin SOPR metrics had high values when the early 2021 top formed.

Related Reading | Inflation fears sparks Bitcoin rally before Taproot – Crypto Roundup, Nov 15, 2021

But before the run started, there was a period where the STH SOPR shot up and the other indicators also increased in value. However, there was no top formation here as it was only a pre-bull run shakeout.

A trend similar to that seems to be visible in the current time period. The STH SOPR is high right now, but long-term holders don’t seem to be realizing that much profits.

This fact makes the analyst believe that the latest decline in Bitcoin’s price was possibly just a shakeout, and not a top formation.

Here is a chart that shows the current trend in BTC’s price:

BTC's price continues to plunge down | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com