What is SOPR
SOPR, Spent Output Profit Ratio, is an indicator that reflects the degree of profit or loss of an asset. It can be used to determine whether the selling price of an asset is higher or lower than its buying price. If the selling price is higher than the buying price, it indicates that the asset is sold at a profit; otherwise, it indicates that the asset is sold at a loss. SOPR is typically observed on a daily basis and is used to evaluate the profit or loss within a day for assets.
The formula for calculating SOPR is the selling value of the asset (in USD) divided by the buying value of the asset (in USD).
- Value = The circulating supply of the asset within a specific time period (typically on a daily basis).
- Price (spent) = The selling price of the asset.
- Price (created) = The buying price of the asset.
SOPR compares the daily selling value and buying value of Bitcoin to calculate the profit or loss ratio. It mirrors the market's profit and loss within a specific time period and the overall market sentiment. It also provides buy/sell signals for investors.
- SOPR greater than 1: On average, the active assets within a day were sold at a profit (i.e., the selling price higher than the buying price).
- SOPR less than 1: On average, the active assets within a day were sold at a loss (i.e., the selling price lower than buying price).
- SOPR greater than 1 and continuously rising: The asset price is consistently increasing, and the market is consistently profitable. This indicates that the market is approaching the top and a sell signal is generated.
- SOPR less than 1 and continuously declining: The asset price is consistently decreasing, and the market is consistently in a loss state. This indicates that the market is approaching its bottom and a buy signal is generated.
In practical analysis, a variant of SOPR called aSOPR is often used to improve analysis accuracy. aSOPR excludes Bitcoin transactions with a duration of less than 1 hour, which enhances the visibility of the market profit and loss situations and the market trends while providing clearer buy/sell signals.
Historically, SOPR values between 1.04 and 1.07 indicate the market top, while values between 0.88 and 0.96 indicate the market bottom. For example, on November 10, 2022, due to the FTX bankruptcy incident, the price of Bitcoin dropped to $16,000. SOPR rapidly declined from 0.99 to a bottom of 0.87. After reaching the bottom, the price of Bitcoin gradually recovered to above $20,000.
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