SOPR Explained: Best On-Chain Metric in Bitcoin?

Written by Sean GraytokUpdated: 10th Nov 2021
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This article will define SOPR and show you how to use it to evaluate the Bitcoin market.

What is Spent Output Profit Ratio (SOPR)?

SOPR is an abbreviation for Spent Output Profit Ratio and is an on-chain metric used to evaluate the profit, loss, or net neutral spending occurring in Bitcoin.

SOPR is calculated by taking the aggregate USD value of spent outputs at their spent time divided by the USD value of spent outputs when they were created. Put simply: price sold / price paid.

SOPR is commonly used to analyze market sentiment by showing the degree to which aggregate profits or losses are being realized by market participants.

Here’s a quick snapshot of how to interpret SOPR:

  • SOPR greater than 1: coin owners sold in profit
  • SOPR equal to 1: coin owners sold at their break-even point
  • SOPR less than 1: coin owners sold at a loss

The higher the SOPR, the higher the amount of profits being realized. The lower the SOPR, the larger the amount of losses being realized.

In addition to calling macro tops and bottoms, SOPR can be used to determine whether Bitcoin is in a bull or bear market because it identifies how market players behave around their break-even price point.

How to Read SOPR Charts: Interpretation and Price Movements

The chart below will be useful as we talk about interpreting SOPR. The black line is the price of bitcoin and the orange line in the 14-day moving average of SOPR:

How to Read SOPR Charts

As SOPR trends higher, there’s a higher probability of profit-taking. Remember, SOPR equals the price sold divided by the price paid, so SOPR increases as the numerator (price sold) grows larger than the denominator (price paid).

As investors reach their unique threshold to sell and decide to distribute their coins into the market, supply overwhelms demand, causing bitcoins price to fall. SOPR has locally topped out here.

The people who bought those redistributed coins at the top and quickly sold into the weakening price action are now pulling down the value of SOPR because their price sold (numerator) is less than their price paid (denominator). SOPR is decreasing.

However, SOPR trending lower is not bearish in and of itself. It’s more important to analyze how SOPR interacts with the number 1.

If SOPR tests and drops below 1, the aggregate market is panic selling coins at a loss, further increasing supply and sending price even lower.

If SOPR tests and bounces off 1, the smart money is buying the dipto provide the demand that exceeds the supply from panic sellers. This confirms that most of the spending that decreased SOPR was done by panic sellers.

Crossing and sustaining values on either side of 1 can tell us if we’re in a bull or bear market.

Let’s take two examples from the chart above to see each scenario. First, bullish:

How SOPR Works in Bitcoin

We can see SOPR bounce off 1, confirming bullish market sentiment, and price soon follows.

Next, we’ll look at SOPR following the infamous Elon tweets:

SOPR Example

We see a price correction with SOPR testing and crossing below 1, indicating investors are selling at a loss and suggesting overall bearish market sentiment.

You can see the price grind down further after SOPR crosses 1. It tries to break above 1 around June and is rejected, confirming a bear market.

SOPR tests 1 again in late July and can break above as long-term holders return to profitability:

Spent Output Profit Ratio Example

This marked the end of the mini bear market and resumed overall bullish sentiment. We see a price increase shortly after SOPR crosses above 1.

Understanding The Psychology of SOPR

The creator of SOPR, Renato Shirakashi, described how people are more comfortable selling when they’re in profit.

People are reluctant to sell at their break-even point during a bull market because sentiment is positive, and they believe the price will go higher. There is more greed in a bull market.

This hodlingbehavior decreases supply and puts upward pressure on the price, which eventually increases. The bull market continues.

Alternatively, during a bear market, people are sitting in losses and waiting for a break-even point. At this point, they’re fine with just getting their original investment back. There is more fear in a bear market.

As price recovers and the market nears profitability (SOPR testing 1 from below), people looking to break even sell their coins, thus increasing supply and putting downward pressure on the price, which eventually decreases. The bear market continues.

This is why the break-even point (SOPR = 1) is so significant. It’s a psychological inflection point for the market.

Variations of SOPR

There are three variations of the standard SOPR metric:

  • Adjusted SOPR (aSOPR)
  • Long-Term Holder SOPR (LTH-SOPR)
  • Short-Term Holder SOPR (STH-SOPR)

We’ve exclusively referred to this metric as SOPR, but the most common version of it is actually called “Adjusted SOPR,” or aSOPR.

The adjusted SOPR filters out all transaction volume for coins with a lifespan younger than one hour.

These transactions do not typically represent the sale or purchase of a coin, and therefore are not economically meaningful to include.

Additionally, we can separate SOPR into long-term holders and short-term holders, or LTH-SOPR and STH-SOPR, respectively.

LTH-SOPR includes spent outputs older than 155 days, while STH-SOPR includes spent outputs younger than 155 days.

These two variants allow us to separately analyze the realized profitability or loss of long-term holders compared to short-term holders, which is useful when considering the important relationship between these two cohorts.

Historically, long-term holders are the smart money and sell into market strength and accumulate during weakness. Short-term holders take the other end of those respective trades.

LTH-SOPR trending higher means long-term holders realize gains at high multiples and selling — behavior that suggests a macro top could be approaching.

Bitcoin has experienced severe drawdowns each time LTH-SOPR has risen above 10.0, equating to the LTH cohort realizing profits of +900%.

SOPR: Frequently Asked Questions

What is SOPR Bitcoin?

SOPR is an on-chain metric that is used to predict Bitcoin cyclical tops and bottoms. It measures the realized profits or losses that the aggregate market takes on a given day. A high SOPR value means the market realizes large profits, and a top may be near.

What is spent output?

Spent output refers to the sale of bitcoin. The on-chain metric SOPR compares the price of bitcoin when it was “spent” to its price when it was created to determine profitability.

What is adjusted SOPR?

Adjusted SOPR is the most common variation of the standard SOPR metric. It filters out economically insignificant transaction data that clouds the accuracy of the standard SOPR. Additionally, it may be useful to analyze the 7-day or 14-day moving average of SOPR instead of the daily version, which can be noisy.

Bottom Line: Spent Output Profit Ratio (SOPR) Definition

SOPR is certainly a metric to watch closely. It can tell you when a bull market is starting and when it may be ending.

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This article is for informational purposes only. It is not intended to be investment advice.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.