A crucial profitability indicator for the Bitcoin market recently turned negative, which some analysts take to be a bearish sign for the cryptocurrency’s price. As a result of Bitcoin’s most recent price drop, which brought it back down to the $22,000 area, the 30-day Simple Moving Average of the average Spent Output Profit Ratio (aSOPR) recently dropped back below 1, as can be seen in the chart below, which was presented by the company Glassnode, which specializes in crypto data analytics.
According to the explanation provided by Glassnode, this indicates that the Bitcoin market is now, on average, recognizing losses in on-chain spending. The cryptocurrency data company asserts that when the aSOPR is greater than one, this typically “aligns with both a healthier inflow of demand (to absorb profit taking) and a more constructive opinion of the asset.”
Because the aSOPR only takes into account the profit or loss on a per-spent-output basis and does not take coin volume into account, this means that it gives equal weight to shrimps and whales. According to Glassnode, this means that it offers a “view of the broadest cross-section of the market.” When looking at this indicator, Glassnode makes use of a 30-day Simple Moving Average in order to provide a market indicator that is more deliberate but carries a higher degree of conviction.
Another Key Profitability Indicator Could Also Soon Turn Negative
If the recent downward trend in the price of Bitcoin continues over the next few days and weeks, as many people now fear is a likelihood in the wake of key technical support being broken and Fed Chair Jerome Powell’s most recent hawkish surprise, then another key indicator of profitability in the Bitcoin market will likely also turn negative at that point.
The Realized Profit and Loss (P/L) Ratio of Glassnode’s 30-Day Simple Moving Average has been trending downward in recent days, and if the present rate of decline maintains its momentum, the ratio could fall below 1.0 by the end of this week. According to the explanation provided by Glassnode, when the Realized P/L Ratio is greater than 1.0, this “indicates that the market is now realizing a greater percentage of USD-denominated profits, than losses.”
Glassnode continues by saying that because “this indicator accounts for the total realized profit/loss,” larger transactors, such as whales, will carry greater influence than smaller ones, such as prawns. This is because “unlike the aSOPR model described above, this indicator accounts for the total realized profit/loss.”
On-Chain Picture Becoming Less Bullish
If the Realized P/L Ratio were to join the aSOPR in falling below 1.0, this would mean that only five out of eight of the on-chain and technical indicators tracked by analysts at Glassnode in their “Recovering From a Bitcoin Bear” dashboard would still be flashing a bullish sign. This would mean that if the Realized P/L Ratio were to join the aSOPR in falling below 1.0, this would mean that the real price of bitcoin would be
To review, the dashboard looks at the performance of eight different indicators to determine whether or not Bitcoin is trading above key pricing models, whether or not network utilization momentum is increasing, whether or not market profitability is returning, and whether or not the balance of USD-denominated Bitcoin wealth favours the long-term HODLers.
When all eight of these indicators start flashing green at the same time, this has traditionally been interpreted as a very strong bullish indication for the Bitcoin market. However, in spite of the recent difficulties faced by the Bitcoin market and the continuation of the decline from the recent high of $25,000, the dashboard continues to fail to transmit a convincing bull signal.
Bitcoin advocates would be wise to temper their optimism about the near-term prospects of the cryptocurrency, given the continuation of macroeconomic headwinds. Given that circumstances reached an extreme level of oversold in November and December of last year, it is safe to say that the bear market that began in 2022 has finally come to an end. However, it is likely still too early to predict a near-term surge back toward 2022 highs in the upper $48,000s because the market has not yet reached that point.
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