Bitcoin’s current price has left many investors with the question “are we in a bull or bear market”? There has been approximately a 48% drop in its price ever since it got to its all-time high last year November. There have been predictions by different analysts that cryptocurrency would bottom at a certain price(support). Unfortunately, it keeps breaking those supports and forms a lower low.
Apparently, a trader who invested in Bitcoin last November would have access to almost half of the initial capital. There hasn’t been a clear decision on the trend of the market by analysts. This is because the 48% drop in price happens in both bull and bear markets. But according to the expectations many investors had in Bitcoin getting to an all-time high of 100 thousand dollars, a 48% decline is a great loss.
However, this has caused great panic among investors, leading to an increase in the number of sellers. According to Glassnode and the trading suite, data from these firms revealed that Btc sellers now sell below the purchase price. Regardless of the losses incurred, they just want to sell to prevent further losses. This action is mostly ridiculed by long-term traders who strongly believe that the price decline is just a short-term retracement.
Spent Output Profit Ratio (SOPR)
While it is true no one wants to sell an asset in loss, the gradual decrease in Bitcoin’s price has left some traders no choice. On the 26th of January, Philip Swift, an analyst at Decentrader took to Twitter to share his analysis on the Spent Output Profit Ratio (SOPR). He revealed that the record of investors selling in loss has been much in the past few months. Although it is still shallow compared to the 2018/2019 bear market.
SOPR shows the data of price purchased versus price sold for Bitcoin indicating a bear or bull market. This gives a comprehensive record of sellers in profit and loss. SOPR trading below 1 indicates that sellers are selling in loss and this suggests that a bottom is near. When SOPR trades above 1, it means sellers are selling in profit and a top could possibly be near. But when SOPR is equal to 1, this simply means that investors are at or close to the price they bought indicating uncertainty.
Renato Shirakashi, the creator of SOPR, revealed that the indicator is relatively high and it signals a local peak. He noted that the psychology of selling in loss is most likely done by investors in panic mode.
Bullish Divergence in Short term holder (STH) SOPR
When funds are held in wallet addresses for less than 155 days, they are termed, short-term holders. Long-term holders hold funds in their wallets for more than 155 days. According to a post on Twitter by SwellCycle, a chart showing the STH SOPR (12 moving average) revealed a bullish divergence. This divergence is very similar to the last bullish divergence that occurred last summer.
If the similarities continue, bitcoin’s price might fall more (which is currently happening) leading to an increase in STH SOPR in the future and a perfect bounce-back of price to the upside.
Could this be a buy signal?
An analysis posted by @SwellCycle showed the 7-day average STH supply in profit. The price of bitcoin at times profit hits zero was highlighted in 2014-2016 and also in 2018-2019. Many analysts are linking indicators such as SOPR to the current price of Bitcoin thereby giving out buy signals using the popular term “buy the dip”. However, there has been bullish and bearish news that cannot be overlooked.
Some of the bullish news include: Btc adoption by countries, El Salvador acquiring more bitcoin, Fear and greed index signaling buy, etc. But lost support at $40,000 after bearish news about the Central Bank of Russia attempting to ban the use of cryptocurrency.
In conclusion, considering previous price actions and indicators, it is always good to buy whenever there is a high record of short-term holders losing their positions. Perhaps it is another end of an extended bear market. Hopefully one gets to make the right choice.