Behind the charts and candlesticks you often see, there are habits of Bitcoin holders that help shape market direction.

In recent years, on-chain analysts have begun to frequently discuss an indicator that can show whether investors are taking profits or selling their assets at a loss.

This raises the question: how can we better understand holder sentiment?

In this article, we will discuss how the Spent Output Profit Ratio (SOPR) can be a tool that can help us understand what’s happening behind the scenes in Bitcoin transactions.

What Is SOPR?

The SOPR, or Spent Output Profit Ratio, is an on-chain metric used to determine whether Bitcoin transfers are at a profit or loss.

The SOPR works quite simply: it compares the dollar value of a coin when it was first created (usually when it was purchased) with the dollar value when it was finally transferred or sold.

If the value is higher when transferred, it means the holder is realizing a profit. If it is lower, it means they are selling at a loss.

This indicator is then calculated as the ratio of the realized value to the value at creation, making the SOPR result immediately readable. A value above 1 indicates a profit, below 1 indicates a loss, and exactly 1 indicates breakeven.

This simplicity is what makes the SOPR widely used in modern on-chain analysis.

This indicator helps explain the market behavior behind Bitcoin transactions, from moments when many people take profits to periods when investors refrain from selling at a loss.

The Basic Mechanism of SOPR and How It Works

Before delving into the function and benefits of SOPR, it’s important to first understand how this indicator works at the most basic level. Here’s the basic mechanism of SPOR and how it works.

How Does SOPR Extract Data from Bitcoin Transactions?

Every Bitcoin coin has a recorded value when it was first created, essentially its “birth price.” When the coin is moved again, the blockchain records its new value as a spent output.

SOPR compares these two data points to determine whether the coin movement occurred at a profit, loss, or break-even.

Because it focuses on transaction value, rather than direct market price, SOPR helps understand holder behavior that is often invisible from price charts.

SOPR Formula and the Meaning of Each Number

The SOPR formula itself is quite easy to understand:

SOPR = value when spent / value when created

From this simple comparison, a clear picture of the transaction’s condition emerges, including the following:

• SOPR above 1? The owner sells at a profit because the value at purchase is higher than the value at which they acquired the coins.
• SOPR below 1 indicates a loss, indicating the seller is selling the coins at a price lower than their initial cost.
• SOPR around 1 indicates a break-even point, where the seller is neither making a profit nor making a loss.

SOPR Calculation Example

The SOPR calculation example is easier to understand when you see it in real numbers. Here’s an illustration.

Realistic Illustration Using Simple Numbers

Imagine someone buys 1 BTC at $20,000. That becomes the coin’s “starting price” as recorded on the blockchain. Some time later, the coin is sold when the price rises to $30,000. To calculate the SOPR, use the following formula:

SOPR = value at purchase / value at creation
SOPR = 30,000 / 20,000 = 1.5

A figure of 1.5 indicates the coin was sold at a profit. If the coin is released at $18,000, the SOPR < 1 means the owner is selling at a loss. Meanwhile, SOPR = 1 indicates a break-even position, with neither a profit nor a loss.

Why is SOPR Important in Bitcoin Analysis?

A simple indicator like SOPR can provide a different perspective when reading Bitcoin market conditions. Here are some reasons why this indicator is often used by analysts to understand market conditions from the perspective of holder behavior.

Reading Holder Sentiment Through Realized Profit/Loss

SOPR helps see what Bitcoin holders are actually doing, namely whether they are selling at a profit or selling at a loss.

If most holders are selling at a profit, the market is usually quite confident. Conversely, when many are selling at a loss, it indicates stress and discomfort in the market.

In essence, SOPR provides a simple picture of market mood without the need for guesswork.

SOPR’s Relationship to Market Cycles

SOPR movements generally follow the ups and downs of Bitcoin’s cycles. When the market is rising, SOPR usually remains above 1 because people prefer to sell at a profit.

However, when the market declines, the SOPR value tends to fall below 1 because many holders sell their coins despite losses. This pattern doesn’t predict price, but it helps provide a simple indication of whether the market is strong, shaky, or recovering.

Market Signals That Can Be Read from the SOPR

To understand the direction of Bitcoin’s movement, the SOPR is often used as an early indicator of what holders are thinking. Here are some market signals that can be read from the SOPR.

SOPR in a Bullish Phase

In an uptrend, a consistent SOPR above 1 indicates that many holders are selling at a profit.

This situation indicates a strong level of market confidence, as market participants tend to hold onto losses and only release coins when they feel comfortable.

As long as this confidence persists, short-term corrections usually don’t easily change the trend direction.

SOPR in a Bearish Phase

When the SOPR is frequently below 1, it indicates market stress as many holders begin selling at a loss.

This pattern indicates a defensive sentiment, where market participants are more focused on reducing risk than pursuing profits.

By reading the SOPR movement during this phase, you can see how uncertainty influences investor decision-making.

SOPR Variations in On-Chain Analysis

SOPR variations provide a deeper perspective on Bitcoin’s movement. Here are some important variations to understand:

SOPR: Transaction Noise-Adjusted SOPR

aSOPR functions as a cleaner version of SOPR by filtering out small transactions or internal movements.

The goal is to display clearer trends so readers can see the direction of market movement without being distracted by the “noise” of irrelevant activity.

STH-SOPR: Short-Term Holder Behavior Reading

STH-SOPR focuses on short-term holders who tend to react quickly to market changes.

This indicator helps capture behavior such as panic selling, quick profit-taking, or sudden selling pressure, all of which reflect the most spontaneous sentiment in the market.

LTH-SOPR: Long-Term Holder Confidence Indicator

LTH-SOPR is more stable and reflects the behavior of long-term holders. Its movements often mark phases of accumulation or distribution on a large scale.

From this, you can understand how market confidence levels form over a longer period.

Strengths and Limitations of SOPR

After understanding these variations, it is also important to understand the strengths and weaknesses of SOPR so you can use it more wisely. Here are its advantages and limitations.

Advantages: Sees Real Investor Behavior

SOPR provides a direct view of how holders are treating their coins, without assumptions. It records whether people are selling at a profit, holding on to losses, or simply moving assets.

Because the data comes from real transactions, this indicator helps to read market dynamics more objectively.

Limitations: Not All Transactions Are Sales

While informative, SOPR cannot distinguish whether coin movements are sales or simply transfers between wallets. Visible on-chain activity may not necessarily reflect actual selling.

Therefore, interpreting SOPR requires caution to avoid misinterpreting market signals.

Comparison of SOPR with Other On-Chain Indicators

To understand SOPR’s place in on-chain analysis, you can see how this indicator compares to other metrics frequently used by traders and analysts. Here’s a comparison:

SOPR vs. MVRV

SOPR illustrates realized profit, which is the amount of profit or loss actually realized when Bitcoin changes hands.

Meanwhile, MVRV focuses on unrealized profit, which is the difference between the current market price and the purchase price of all coins on the network.

The two complement each other because SOPR indicates actual selling pressure in the market, while MVRV provides an indication of whether the market is historically undervalued or overvalued.

SOPR vs. Realized Profit/Loss Metrics

SOPR offers a more granular perspective because this ratio shows the intensity of profit-taking or capitulation immediately upon transaction occurrence.

On the other hand, the realized profit/loss metric is more aggregate, calculating the total realized profit or loss in a single period without highlighting how the dynamics of selling pressure change over time.

Combined, the two help understand market momentum, both on a macro and micro scale.

How to Use SOPR in Market Analysis?

To be able to read market dynamics more calmly and with direction, you need to understand how SOPR is used in practice. Here’s how to use it in market analysis.

Applying SOPR to See Holder Break-Even Conditions

SOPR helps you see whether holders are selling at a profit, loss, or break-even position. From this pattern, you can gauge market sentiment, whether people are more inclined to sell or hold coins.

The approach doesn’t predict prices; it simply reads the behavior that actually occurs on the blockchain.

SOPR as a Supplement, Not a Prediction Tool

SOPR cannot stand alone and does not determine market direction. It is more suitable as a complement combined with other indicators such as volume, liquidity, or macro context.

In this way, SOPR provides a more complete picture without creating excessive expectations.

Conclusion

So, that was an interesting discussion about Bitcoin SOPR as a profit and loss indicator that you should be familiar with. You can read more about it in the INDODAX Academy Crypto Academy.

In conclusion, after understanding what SOPR is, its formula, how to read its movements, and observing various bullish and bearish signals, as well as its various metrics, you now have a more complete picture of this indicator.

Essentially, SOPR is not a price forecasting tool, but more like a supplementary lens to more clearly observe market behavior patterns.

Therefore, you can use SOPR as a supporting analytical tool, not an absolute compass, so you can understand crypto market dynamics with more confidence.

By the way, in addition to gaining in-depth insights through various popular crypto education articles, you can also broaden your horizons through a collection of tutorials and choose from a variety of popular articles that suit your interests.

Besides updating your knowledge, you can also directly monitor digital asset prices on Indodax Market and stay up-to-date with the latest crypto news. For a more personalized trading experience, explore Indodax’s OTC trading service. Don’t forget to activate notifications so you don’t miss out on important information about blockchain, crypto assets, and other trading opportunities.

You can also follow our latest news via Google News  for faster and more reliable access to information. For an easy and secure trading experience, download the best crypto app from INDODAX on the App Store or Google Play Store.

Maximize your crypto assets with the INDODAX Earn feature, a practical way to earn passive income from your stored assets. Register now with INDODAX and easily complete KYC to start trading crypto more safely, conveniently, and reliably!

Indodax Official Contact
Customer Service Number: (021) 5065 8888 | Support Email: [email protected]

Also follow us on social media here: Instagram, X, Youtube & Telegram

FAQ

1.What is SOPR in Bitcoin?
SOPR is a ratio that indicates whether Bitcoin transferred by its owner is in profit or loss.

This indicator compares the price at which coins were created with the price at which they were spent, allowing you to see whether the market is realizing profits or cutting losses.

2.What is the difference between SOPR and aSOPR?
SOPR includes all transactions, including transfers between wallets that may not be related to sales.

Meanwhile, aSOPR (adjusted SOPR) removes internal transactions or small volumes that can skew the data. As a result, aSOPR is better suited for reading medium- and long-term trends.

3.What does an SOPR below 1 mean?
An SOPR below 1 means that the majority of coins being transferred are being sold or moved at a lower price than the price at which they were created.

This condition usually occurs during weak market periods, when many holders are realizing losses or engaging in panic selling.

4.Can SOPR be used for short-term trading?
It can be used as a supplementary reference, but is not ideal as a primary tool for short-term trading. SOPR movements on smaller timeframes can be influenced by noise, internal transactions, or intraday volatility.

This indicator is more suitable for reading sentiment and macro market conditions.

5.Which indicators work well with SOPR?
SOPR is usually combined with other on-chain indicators such as MVRV, Realized Profit/Loss, or Net Unrealized Profit/Loss. This combination provides a more complete picture of market sentiment, without the need to directly infer price direction.

Author: Boy