SOPR represents the profit ratio of coins moved on-chain, measured through the variation between purchase price and sale price. It is calculated by dividing the realised value of a spent output (in USD) by the value at creation (in USD).
As such, a SOPR value of greater than 1 implies that people are, on average, selling at a profit (because the price sold is greater than the price paid). Likewise when SOPR is below 1, this implies that people would be selling at a loss.
Using SOPR to Predict Price Movements
By examining SOPR, we can identify interesting patterns during bull and bear markets.
During bull runs, the market quickly corrects prices which drive the SOPR value below 1 (i.e. prices which mean people are selling at a loss). This is likely due to increased confidence that prices will continue to rise during a bull market, so it would be irrational to sell at a loss when gains are imminent.
Conversely, in bear markets, the market quickly corrects prices which push the SOPR value above 1 (i.e. prices at which profits are being made). This is likely due to fear that prices will continue going down, so selling at break-even point is seen as a good result.
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Disclaimer: This report does not provide any investment advice. All data is provided for information purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.