Bitcoin held over the long-term recently became profitable, according to one metric. (Photo by … [+]
Recently, a particular blockchain indicator shifted, indicating that selling units of bitcoin held for a certain minimum time frame would turn a profit.
Earlier today, CoinDesk reported that the long-term holder spent output profitability ratio’s (LTH-SOPR) seven-day average surpassed a value of one for the first time since last May, citing data from Glassnode to make this claim.
The SOPR looks at units of bitcoin moved on-chain, measuring how profitable it would be to sell the digital currency, according to Glassnode Academy.
When the value of this metric surpasses one, that means that selling the aforementioned units would turn a profit, and when the value is less than one, it means that such a transaction would create a loss.
In addition to measuring profitability, this particular indicator can also give market observers some insight into sentiment, according to Glassnode Academy.
The LTH-SOPR specifically zooms in on units of this digital currency that have existed for at least 155 days, as specified in the CoinDesk article.
The article, written by Omkar Godbole, stated that when the value of the LTH-SOPR transitioned from a value of less one to greater than one in November 2015, May 2019 and May 2020, it took place before the digital currency enjoyed bull runs that lasted for multiple years.
When analysts were asked to provide input on the LTH-SOPR, as well as its implications, for this article, they offered mixed replies.
“It’s another way to measure sentiment,” Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, wrote in comments sent through email.
“When SOPR is above 1, it means coins that moved in that period were profitable,” he noted. “An SOPR less than 1 means people in loss were forced to sell.”
“Since a return to 1 and above means long term holders are finally beginning to be in the green, it may also mark a shift in sentiment where those entities start reducing their selling pressure and even buying more,” said Dipasquale.
“We wouldn’t say the indicator forecasts a rally, however. It reveals a data point that usually coincides with a shift in sentiment.”
Tim Enneking, managing director of Digital Capital Management, described the assessment provided by Godbole as “accurate” via emailed comments, but emphasized that “LTH-SOPR is not what is driving BTC and the crypto market in general up. Likewise, on the downside, the LTH-SOPR is an indicator of a cause, rather than the cause itself.”
“There are four factors causing LTH-SOPR to increase and BTC and crypto prices to increase: peak interest rates (almost certainly next week), pending BTC halving, the FTX ‘forced’ capitulation and crypto bottom in mid-November, and, more important than any of those, the breakdown in fiat equities and BTC correlation,” he stated.
“Without the last, crypto would be languishing just like the S&P, which has barely moved this year.”
When asked about the impact these variables were having on bitcoin, DiPasquale concurred, stating the following:
“Yes those are general reasons why the market has been trending up ward. And whenever market trends up, the SOPR inevitably goes above 1 at some point.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.