Understanding the SOPR-STH Ratio

The Short-Term Holder Spent Output Profit Ratio (SOPR-STH) is a key metric in Bitcoin analytics, helping traders gauge market sentiment and understand the behavior of short-term holders. Simply put, it tells us whether Bitcoin is being sold at a profit or a loss, which can signal potential shifts in price trends.

What is the SOPR-STH Ratio?

SOPR-STH measures the profitability of Bitcoin transactions where coins have moved within the last 155 days. The formula is:

• SOPR-STH > 1: Coins moved within the last 155 days are being sold at a profit, showing bullish sentiment and strong market confidence.

• SOPR-STH = 1: Coins are being sold at their break-even point, indicating a neutral market stance.

• SOPR-STH < 1: Coins are being sold at a loss, which suggests bearish sentiment and lower confidence among short-term holders.

The provided chart visualizes Bitcoin’s price alongside the SOPR-STH and SOPR ratios, offering valuable insights into market behavior:

• Periods of SOPR-STH > 1 (Green Shaded Areas): These indicate strong confidence among short-term holders, typically coinciding with bullish price action. Notably, when SOPR-STH remains above 1 for extended periods, Bitcoin's price tends to sustain upward trends.

• Periods of SOPR-STH < 1 (Red Shaded Areas): These represent short-term holders selling at a loss, often aligning with market corrections. When this persists, it suggests capitulation, potentially signaling bottoming-out phases.

• Interaction with SOPR (Orange Line): SOPR, which accounts for the broader market, shows similar patterns but with a smoother trajectory. When both SOPR and SOPR-STH drop below 1, it indicates broader market weakness, while divergences between the two can highlight shifts in sentiment between short- and long-term holders.

• Bitcoin Price Correlation (Gray Line): The price trend tends to align with SOPR-STH movements. For instance, Bitcoin’s rally in early 2024 saw SOPR-STH consistently above 1, reinforcing bullish sentiment. Recent declines in SOPR-STH suggest weakening short-term confidence, hinting at potential support or further downside.

Let’s look at a more recent graph now, the last 3 months:

Over the past three months, the SOPR-STH ratio has been in a downward trend, reflecting a shift in market sentiment from confidence to increasing caution.

• SOPR-STH Dropping Below 1: As seen in the chart, SOPR-STH has recently fallen below 1, indicating that short-term holders are selling at a loss. This suggests that traders who bought Bitcoin in the past 155 days are facing losses and are capitulating. Historically, when SOPR-STH remains below 1 for an extended period, it signals weak confidence and often correlates with price declines.

• Bitcoin Price Correlation: Bitcoin’s price has also been declining, following a pattern where previous short-term holder capitulation has coincided with further downward momentum. If SOPR-STH continues to stay below 1, this could mean that sellers dominate the market, pushing prices lower. However, if the ratio starts rising again, it may indicate that selling pressure is easing.

• Potential Buying Opportunity?: If SOPR-STH begins recovering from this low and moves toward 1, it could signal a shift in sentiment where short-term holders stop selling at a loss and new buyers step in. Historically, such recoveries have marked local bottoms and potential buying opportunities before price rebounds.

• Resistance at 1: If the market is in a downtrend and SOPR-STH retests 1 but fails to break above it, this would signal that short-term holders are still selling into any minor rallies, reinforcing bearish sentiment.

Current Market Sentiment

The data suggests that short-term holders are currently in a loss-taking phase, reflecting weaker confidence. While this could indicate further downside in the short term, it also means that once selling pressure subsides, the market may be primed for a potential recovery. A key signal to watch is whether SOPR-STH can reclaim 1—this would indicate a shift in sentiment and the potential for an upward price movement.

How SOPR-STH Reflects Market Sentiment

The SOPR-STH ratio is a useful tool for understanding short-term market psychology:

• Above 1 (Profit-taking phase): A consistently high SOPR-STH suggests that short-term holders are realizing gains, typically in bullish market conditions. When Bitcoin’s price is rising, traders are more confident, selling at a profit and reinforcing the uptrend.

• Below 1 (Capitulation phase): A ratio under 1 indicates that short-term holders are selling at a loss. This often happens in downturns when panic selling increases. If the ratio stays below 1 for an extended period, it could indicate weak market confidence and further declines.

Comparing SOPR-STH with SOPR-LTH

While SOPR-STH focuses on coins moved within the last 155 days, the Long-Term Holder SOPR (SOPR-LTH) tracks coins moved after being held for longer periods. The differences between these two ratios can provide additional market insights:

• SOPR-STH reacts faster to price changes since short-term holders are more likely to react emotionally and sell quickly when conditions change.

• SOPR-LTH is more stable, as long-term holders tend to hold through volatility and only sell during major trends.

• When SOPR-STH drops below 1 while SOPR-LTH remains above 1, it suggests short-term holders are panicking while long-term holders remain confident—this can indicate a potential buying opportunity.

• Conversely, if both SOPR-STH and SOPR-LTH drop below 1, it may signal a deeper bearish trend where even long-term holders are losing confidence.

How SOPR-STH Interacts with Bitcoin Price

The SOPR-STH ratio often moves in tandem with Bitcoin’s price, but certain patterns can offer insight into future movements:

• Retests of the 1 Level: The 1 level acts as a critical threshold for traders.

  • In Uptrends: When the ratio falls to 1 and bounces back up, it often acts as support, showing that short-term holders are confident and willing to buy the dip.

  • In Downtrends: If the ratio rises to 1 but fails to break above, it suggests resistance, meaning short-term holders are selling into minor price recoveries—often leading to further declines (a “dead cat bounce”).

• Potential Buying Opportunities:

  • If SOPR-STH is below 1 but starting to recover, it can signal that the market is absorbing losses and may soon turn bullish.

  • If SOPR-STH is rising above 1 while Bitcoin price stabilizes, it could indicate increasing confidence, meaning an uptrend may follow.

  • When SOPR-STH is below 1 for an extended period, it could mean that Bitcoin is undervalued, potentially presenting a strong buying opportunity before the next uptrend.

Conclusion

The SOPR-STH ratio is a valuable tool for understanding Bitcoin’s short-term market dynamics. By analyzing whether short-term holders are selling at a profit or loss, traders can assess sentiment shifts and identify key buying or selling opportunities. When combined with SOPR-LTH and Bitcoin price action, it becomes even more powerful, helping investors navigate market cycles with greater confidence. As always, using SOPR-STH alongside other technical and fundamental indicators provides the best approach for making informed trading decisions.

For those looking to access on-chain analysis, including SOPR-STH and other valuable metrics, ResearchBitcoin.net offers a free and open-source alternative. Unlike premium providers such as Glassnode, Bitbo, or CryptoQuant, which can be expensive, ResearchBitcoin.net enables users to analyze blockchain data without financial barriers. This democratization of on-chain analytics allows more traders and investors to make data-driven decisions.

Disclaimer: The information disclosed here does not constitute an investment advice ; it is for informational purposes only and does not constitute investment advice. You should do your own research while investing in crypto and only invest money you are ready to lose.