We, the ‘crypto natives’, often speak about long-term and short-term holders. Yes, we are talking about diamonds and weak hands. But an important question remains, have the long-term holders capitulated?
In on-chain terms, a long-term holder is an address that held BTC for more than 155 days. To analyze whether the long-term holders are still in the game, let’s take one of the most discussed Bitcoin on-chain indicators – Long-Term Holder SOPR (LTH-SOPR).
What Is SOPR?
Spent Output Profit Ratio or SOPR is the ratio between the valuation of an address at the current time and at the time of its creation. In other words, it is the US Dollar value of BTC at the time of taking profits upon the same at the time of buying.
This indicator tells us how many addresses or holders are in profit at any given time. We can see how many are long-term holders and how many are short-term ones. Essentially, when we consider Long Term Holder SOPR, we get an idea of the profitability of long-term holders. You can look at this indicator in the following chart:
But How Do We Interpret SOPR?
The interpretation of this data varies with the market conditions. However, LTH SOPR helps us to eliminate short-term traders and event-based volatility.
When the LTH-SOPR value goes above 1, it implies the long-term holders are selling for profit (realizing profit).
Is SOPR Good For A Bull Market?
Though the mass profit taking puts breaks on the bull run, it ensures an organic price discovery mechanism is in place. Otherwise, we would see pumps and dumps in the BTC market, even in a small time frame.
Moreover, SOPR is crucial to stabilize the confidence levels of investors too.
How Can SOPR Affect The Bear Market?
Now when SOPR goes above 1 in a bear run, how can it affect the market? Well, even in a bear market, volatility exists. For example, Bitcoin crashed to 18k and recovered to 21k in a week.
Also, profit-taking in a bear market causes the bear run to extend. Since the market is institution-driven at the moment, a prolonged bear market means underperforming assets in an institutional portfolio. That can cause ripple effects and can even invite more bears.
Then, when the LTH-SOPR value goes below 1, it says the holders are selling for a loss (realizing losses). It shows that investors are fearful that the prices will crash further. It can also signal that long-term holders in profit are not selling at all!
Present Status of LTH-SOPR
The current LTH SOPR indicator is at 0.6. That means the Long Term Holders are at a loss and will not be selling aggressively. Usually, LTH-SOPR values below 0.5 denote a market bottom. In the 2018 bear market, the market bottom was at 0.47. Logically, a SOPR value of 0.53-0.55 (considering the change in marketcap) can form the 2022 bear market bottom.
So, are we near the bottom territory? Probably. But a strong recovery will depend on the macroeconomic conditions.
An interest rate hike can cause bitcoin dips. But rest assured, price discovery will take place sooner or later. For now, Dollar Cost Average is the best way forward.
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