Spent Output Profit Ratio (SOPR)
What is SOPR?
Spent Output Profit Ratio (SOPR) is a proxy visualization of profit-taking on the blockchain at any given moment in time.
Let’s take a simple example. While not exclusively the case, when coins leave wallet A to go to wallet B, they are often being sold by the owner of wallet A to the owner of wallet B. SOPR shows whether coins moving between wallets are done so in aggregate profit, loss or breakeven during a specific time period.
The chart above is shown across daily timeframes as that is arguably the most useful timeframe for Bitcoin investors.
How is SOPR calculated?
Spent Output Profit Ratio (SOPR) looks at the ratio between the fiat (normal currency such as US Dollar) value when the UTXO was created and the fiat value when the UTXO is spent.
A UTXO is an Unspent Transaction Output and essentially refers to a wallet balance.
Through blockchain analysis we can observe whether outgoing transactions from a wallet are in profit or loss. Aggregating this data up within a specific timeframe then allows us to generate the data that goes into visualizing the Spent Output Profit Ratio (SOPR) chart above.
SOPR above 0 = suggests that coins moved between wallets on that particular day are in profit overall.
SOPR below 0 = suggests that coins moved between wallets on that particular day are ‘being sold’ at a loss.
SOPR trending up = suggests an increasing level of realized profits over the time period where the upward trend is being noted.
SOPR trending down = suggests a fall in realized profits over the time period where the downtrend is being noted.
Why is SOPR useful?
Spent Output Profit Ratio (SOPR) is useful because it provides a snapshot of actual market participant behavior at a given moment in time. It can therefore act as a useful market sentiment tool. If there are significant losses being realized (i.e. SOPR is negative) and those losses are increasing across several days, then that tells us that market participants are fearful and expect the price of Bitcoin to drop further.
In Bitcoin bull markets, such periods can be opportunistic times to buy for the astute investor.
What does this chart show?
In a Bitcoin bull market it shows when there is a potential ‘buy the dip’ opportunity. This happens when the inidcator goes below zero, showing participants are panic selling at a loss. This often occurs before a strong increase in $BTC price.
In bear markets the reverse logic is true. In terms of the indicator, it can go significantly more negative than is typically seen in bull markets.
You can use other live charts on Decentrader to help identify whether Bitcoin is in a bull or bear market such as the 1yr HODL wave chart:
Who Created SOPR?
Spent Output Profit Ratio (SOPR) was first created by Renato Shirakashi. You can follow him on Twitter here: @renato_shira