Bitcoin Spent Output Profit Ratio (SOPR)

Understanding Bitcoin Spent Output Profit Ratio (SOPR)

Spent Output Profit Ratio (SOPR) serves as a crucial indicator offering insights into the profit, loss, or net spending trends within the Bitcoin blockchain. This metric not only provides a panoramic view of market sentiment but also unveils the underlying dynamics between market structures, spanning from bullish phases to bearish troughs.

Unpacking SOPR

SOPR measures the fiat value comparison between when Bitcoin outputs were last moved and when they are spent. This calculation effectively captures whether coins are being transacted at a profit or loss on any given day. When SOPR equals one, it signifies a net neutral market sentiment, indicating that profits realized roughly offset the losses incurred. However, SOPR values above one indicate profits are being realized, with higher values suggesting more significant profit-taking activities. Conversely, SOPR values below one indicate losses are being realized, with lower values signifying deeper losses.

In contrast to SOPR, which provides an aggregate view of profit and loss dynamics, Adjusted SOPR filters out transactions younger than one hour. This adjustment aims to refine the metric by focusing on economically meaningful spending patterns, excluding transient movements between addresses. Another variant, Short-Term Holder SOPR, isolates transactions from coin holders younger than 155 days, offering insights into recent market entrants' behavior during periods of volatility. Finally, Long-Term Holder SOPR filters for coins aged older than 155 days, emphasizing profit multiples realized by long-term investors.

Insights from SOPR

Market Dynamics: SOPR's fluctuations reveal pivotal market shifts. During bull markets, peaks in SOPR indicate a surge in profitable coins being spent, contributing to increased supply and potentially signaling market tops. Conversely, in bearish markets, SOPR often dips below one, reflecting widespread losses as panicked selling ensues.

Behavioral Patterns: SOPR's movements coincide with major market events. Peaks during bull markets often precede corrections or bearish reversals as profitable coins are liquidated. In contrast, troughs during bear markets highlight periods of deep capitulation, where investors sell at losses before smart money steps in to accumulate.