The SOPR Ratio is calculated by dividing the long-term holder’s SOPR by the short-term holder’s SOPR. A value above 1 indicates that long-term holders have realized more profits than short-term holders. When this value rises sharply, it shows that there has been large-scale profit-taking by long-term holders.
Before this occurs, we often see an increase in the UTXO ratio for 1-3 month short-term holders. The profit-taking by long-term holders usually leads to a decline in Bitcoin’s price, causing short-term holders who entered at higher prices to either exit the market or transition into long-term holders.
Recently, the SOPR Ratio reached very high levels, and many of the 1-3 month short-term holders who entered at this time are now facing unrealized losses and transitioning into 3-6 month holders.
From a Bitcoin cycle perspective, short-term holders who absorb the supply from long-term holders eventually transition into long-term holders themselves. This handover of Bitcoin from long-term holders to new investors, who eventually become long-term holders, has always been a part of the cycle.
One concern, however, is that historically, sharp increases in the SOPR Ratio have occurred near the cycle peaks of Bitcoin. Recently, the ratio has been at notably high levels.
However, rather than relying on a single indicator to predict future market trends, a comprehensive analysis that includes on-chain data and macroeconomic factors is necessary. Given the current high level of uncertainty, a cautious, wait-and-see approach seems prudent. At present, there are few triggers to drive a significant rise in Bitcoin’s price, and ultimately, a substantial price increase will likely require an influx of new investors.
Written by Avocado_onchain
