A key indicator to track on-chain bitcoin spending behavior and current market sentiment is the Spent Output Profit Ratio (SOPR).
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A key indicator to track on-chain spending behavior and current market sentiment is the Spent Output Profit Ratio (SOPR). SOPR is calculated by dividing the realized value of a spent output (in USD) by the value at creation of the original. Simply put, it’s calculating the price sold over price paid for every UTXO that moves on-chain. The best place to read more on SOPR is here.
SOPR values greater than 1 indicate that on average, more profit is being realized while SOPR values less than 1 indicate that on average, more losses are being realized. At a value of 1, the market is net neutral. We can analyze SOPR behavior at a total market level and across long-term holders (LTHs) and short-term holders (STHs).
What to look for in the SOPR metric is the metric’s reaction around 1. During continued bull-cycle rallies, we consistently see more profit-taking behavior under 5% with these in-between periods when the market is neutral or break-even. You can see when SOPR bounces off of 1 and back to a state of profit taking during bull markets. When it falls below 1 and doesn’t reclaim that level, the market is signaling a bull market reversal forming as investors realize more losses, expecting price to go lower. Here, we use the Adjusted SOPR which ignores all outputs with a lifespan of less than one hour.
As we approach the tops of bull cycles, there are typically sustained, elevated levels of profit taking right before higher peaks. Eventually, the spent supply overwhelms new demand, and therefore a top forms. Currently, we’re seeing increased profit taking but not at the level of a cycle top or peak.
In previous cycles, there’s a rising trend of long-term holders realizing increased profits as price is bid up by new market entrants. Using a 30-day moving average to take a more macro view of the market, we look to have just started this increased trend of LTH profit taking. Profit taking is a healthy sign indicating the second stage of the bull market, distribution over accumulation, is beginning.
For short-term holders, there is a consistent trend of behavior during corrections in bull cycles. As price corrects, weaker hands capitulate and realize losses which puts more sell pressure on the market. We typically see the STH SOPR number reclaim a position back over 1 after this event, as new buyers are shaken out. Not reclaiming 1 would signal that the larger market of short-term holders are not willing to hold coins and rather want to sell them at a loss. For bull market cycles to continue, we’re looking to see the latest STH SOPR reclaim back over 1 when using the 24-hour MA chart. It’s already showing signs of doing so:
ETC Labs believes regulation is the key to preventing future 51% attacks – Cointelegraph
US banking regulators are looking to clarify crypto rules in 2022 – The Verge
One of them is already working to make banks’ responsibilities clearer
The Federal Reserve, Federal Deposit Insurance Corporation (or FDIC), and Office of the Comptroller of the Currency (OCC) have issued a joint statement announcing a plan to clarify the rules and regulations around how banks can use cryptocurrencies over the next year (via Bloomberg).
The agencies say they’re focusing on setting expectations for what banks can do when it comes to holding crypto, allowing customers to obtain crypto, issuing their own stablecoins (or cryptocurrencies whose value is tied to a fiat currency like the US dollar), and taking crypto as collateral for loans and keeping it on their balance sheets. According to the letter, the goal is to make sure consumers are protected and that banks act responsibly. The regulators also say it’s an attempt to make sure the financial industry isn’t used to launder ill-gotten currency, something the Treasury Department has been focusing on recently.
The OCC has already made moves in this direction — on Tuesday, the acting comptroller released a letter clarifying decisions that the office had made throughout 2020 and early 2021. Now, the letter says, banks will have to ask permission from regional regulators before getting into certain crypto fields.
Previously, the Comptroller said banks were allowed to hold cryptocurrencies for customers as well as assets being used to back stablecoins. Banks were also told they could use stablecoins and act as nodes on blockchain networks. While financial institutions will still be able to carry out these activities, they’ll have to be able to prove to regulators that they can do so safely and responsibly.
These announcements come as some crypto companies have skirmished with regulators over what legal classifications their products fall under. Recently, Coinbase canceled its Lend program after a public feud with the Securities and Exchange Commission over whether what it was selling counted as securities (and would therefore fall under heavier legal scrutiny). The Treasury has also proposed that large cryptocurrency transfers be reported to the Internal Revenue Service, and has asked Congress to start regulating stablecoins.
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