Recently, a particular blockchain indicator changed indicating that selling bitcoin units held for a certain minimum amount of time would generate a profit.
Earlier today, CoinDesk reported that the seven-day average of the Long-Term Holder Spent Production Profitability Ratio (LTH-SOPR) exceeded the value of one for the first time since last May, citing data from Glassnode to make this claim.
The SOPR examines bitcoin units moved on-chain, measuring how profitable it would be to sell the digital currency, according to Glassnode Academy.
When the value of this metric exceeds one, it means that selling the aforementioned units would generate 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 watchers insight into sentiment, according to Glassnode Academy.
The LTH-SOPR specifically zooms in on units of this digital currency that have been around for at least 155 days, as detailed in the CoinDesk article.
The article, written by Omkar Godbole, said that when the LTH-SOPR value rose from below one to above one in November 2015, May 2019 and May 2020, it happened before the digital currency never experienced bull runs that lasted for several years.
When analysts were asked to comment on the LTH-SOPR, as well as its implications, for this article, they offered mixed responses.
"It's another way to measure sentiment," Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, wrote in emailed comments.
“When the SOPR is greater than 1, it means the coins that moved during that period were profitable,” he noted. "A SOPR of less than 1 means the losing people were forced to sell."
“Given that a return to 1 and above signifies that long-term holders are finally starting to be in the green, it may also mark a shift in sentiment where these entities begin to reduce their selling pressure and even buy more," Dipasquale said.
“However, we would not say that the indicator predicts a recovery. This reveals a data point that usually coincides with a shift in sentiment.
Tim Enneking, managing director of Digital Capital Management, called the assessment provided by Godbole "accurate" via email comments, but stressed that "LTH-SOPR is not what drives BTC and the market higher. Similarly, on the downside, the LTH-SOPR is an indicator of a cause, rather than the cause itself.
“There are four factors driving LTH-SOPR and BTC and crypto prices higher: peak interest rates (almost certainly next week), pending BTC halving, capitulation” forced “from FTX and the mid-November crypto low, and, more important than any of them, the fiat stock allocation and BTC correlation,” he said.
"Without the latter, the crypto would languish much like the S&P, which has barely budged this year."
Asked about the impact of these variables on bitcoin, DiPasquale agreed, stating the following:
"Yes, these are general reasons why the market tends to go up. And whenever the market is trending up, SOPR inevitably goes above 1 at some point.
Disclosure: I own bitcoin, bitcoin cash, litecoin, ether, EOS, and sol.
follow me on Twitter or LinkedIn.