On-Chain data reveals that a Bitcoin indicator is currently on the verge of a crucial retest that could determine the cryptocurrency’s next move from here.
In a CryptoQuant post, an analyst highlighted that BTC’s Short-Term Holder Spent Output Profit Ratio (SOPR) is approaching its baseline value. The SOPR is an indicator that tells us whether Bitcoin investors are currently selling/moving their coins at a profit or a loss.
When this metric’s value is above 1, it means that the average holder in the market is currently making some profit with their sales. On the other hand, values below this threshold suggest that profit-taking losses are currently the dominant force in the market.
If the SOPR corresponds exactly to the baseline value of 1, it naturally means that the amount of profits generated balances out the amount of losses as the market as a whole is neutral.
This SOPR applies to the entire Bitcoin market, but in the context of the current discussion, the relevant version of the metric is for just one market segment: the Short-Term Holders (STHs).
The STH group includes all investors who have bought their coins within the past 155 days. This cohort generally consists of weak hands in the market who can easily react to market fluctuations.
Here is a chart showing the trend of the 90-day and 365-day moving averages (MAs) of Bitcoin’s STH SOPR in recent years:[Insert Chart]
As shown in the chart above, both metrics have been above the baseline value in recent days.
As depicted in the chart, the 90-day MA of Bitcoin’s STH SOPR (highlighted in yellow) broke out above the baseline of 1 when this rally started earlier this year.
This breakout indicated a shift towards profit-selling for these investors, which has been observed in the past with all major cryptocurrency rallies.
With the recent leg of Bitcoin’s rally above the $30,000 mark, the 365-day MA of the indicator (highlighted in blue) has also managed to climb above that level.
However, as this happens, the 90-day MA is actually trending downwards and is now on the verge of crossing below the 365-day MA as it approaches the baseline of 1.
In the chart, the analyst has marked the two previous instances when a similar trend formed for the asset. It appears that in 2016, when the 90-day MA retested the 1 mark following a similar structure, the indicator found support at the break-even level. This recovery kept Bitcoin running, eventually leading to a bull market.
However, in 2019, the retest of the 90-day MA STH SOPR failed, and the coin experienced another downtrend. It was only after 160 days that the bullish sentiment returned, and the rally took place.
As the current Bitcoin market seems to be in a similar situation to these two historical events, it is possible that it will follow the example of one of these patterns. It remains to be seen which pattern the asset could exhibit this time.
At the time of writing this article, Bitcoin is trading at around $30,300, representing a 1% decrease in the past week.[Insert Price Chart]
BTC has experienced a strong surge in the past day. Source: BTCUSD on TradingView. Featured image by Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com.