Cryptocurrency enthusiasts often talk about long-term and short-term investors. But there is an important question, did the long-term owners capitulate, that is, have they withdrawn their investments? In on-chain terms, a long-term investor means an address that holds Bitcoin (BTC) for more than 155 days. To analyze whether long-term holders are still in the game, one of the most used Bitcoin chain indicators is the “Long-Term Holder SOPR” (LTH-SOPR). So, has the leading cryptocurrency BTC bottomed out?
What is SOPR? Why is Bitcoin important to the bull market?
The Output Profit Ratio or SOPR Spent is the ratio between the current valuation of an address and its valuation at the time it was created. In other words, it is the US Dollar value of BTC when it profits likewise at the time of purchase. This indicator shows us how many addresses or owners are making a profit at any given time. We can see how many are long-term and how many are short-term. Basically, when we think of Long-Term Holder SOPR, we get an idea of the profitability of long-term holders. You can look at this indicator in the chart below:
The interpretation of these data varies according to market conditions. However, LTH SOPR helps us eliminate short-term traders and event-based volatility. When the LTH-SOPR value rises above 1, it means that long-term holders are selling (making a profit) for a profit. SOPR ensures that an organic price discovery mechanism is in place, even if profiting in mass gives a break to the bull run. Otherwise, we would see spikes and huge dips in the Bitcoin market even in a small time frame. In addition, SOPR is crucial to stabilizing investor confidence levels.
How Can SOPR Affect the Bear Market?
Even in a bear market, there is volatility. For example, as we reported on Cryptokoin.com, Bitcoin dropped to 18k and rose to 21k in a week. Also, making a profit in a bear market will prolong the bear run. Since the market is currently institution-focused, a prolonged bear market means underperforming assets in an institutional portfolio. This can cause ripple effects and even invite more bears.
When the LTH-SOPR value drops below 1, it says the owners are selling for a loss (by realizing the losses). It shows that investors are afraid that prices will fall even more. It may also be a sign that long-term profit holders are not selling at all!
Current status of LTH-SOPR for Bitcoin
The current LTH SOPR indicator is 0.6. This means that long-term owners are at a loss and will not sell aggressively. Generally, LTH-SOPR values below 0.5 indicate market bottom. In the 2018 bear market, the market bottom was at 0.47. Logically, a SOPR value of 0.53-0.55 (given the change in market value) could form the bottom of the 2022 bear market.
So, are we close to the lower zone? Probably. However, a strong recovery will depend on macroeconomic conditions. A rate hike could cause Bitcoin drops. But rest assured, price discovery will happen sooner or later. For now, “dollar cost averaging” is the best way forward.
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