on-chain data for bitcoin price analysis


On-chain data is an important tool for analyzing the price of Bitcoin. On-chain data provides an in-depth look at the Bitcoin blockchain and all of its transactions, allowing users to gain insight into the underlying trends and patterns that influence the price of Bitcoin. On-chain data can be used to track changes in the Bitcoin network, such as the number of transactions and the value of the coins being transacted. Additionally, it can provide valuable insights into the behavior of Bitcoin users and how they interact with the network. By studying on-chain data, analysts can gain a better understanding of Bitcoin’s price movements and potential future price movements.

What is the SOPR indicator and how does it work?

in-depthTrading and investment

What is the SOPR indicator and how does it work?

in-depthTrading and investment

How the SOPR indicator works

Researcher Renato Shirakashi proposed the SOPR indicator in 2019, explaining how it works on my blog.

As in the case with on-chain indicator MVRV, Shirakashi suggested that every bitcoin transaction means buying or selling the first cryptocurrency. However, instead of realized capitalization, SOPR uses the ratio of the purchase price to the sale price of bitcoin.

SOPR uses the dollar value of the penultimate movement of coins as the purchase price of bitcoin, and the dollar equivalent of the last transaction as the sale price.

To determine them, SOPR uses data on the so-called unspent transaction outputs (Unspent Transaction Outputs, UTXO). The purchase price means an incoming transfer with a conditional size of 10 BTC, the sale price is the further movement of these 10 BTC.

For example, at a price of $20,000 for 1 BTC, a UTXO of 10 BTC was created – the purchase price. Moving those 10 BTC when the price of 1 BTC is $40,000 would mean selling. Therefore, the SOPR coefficient for these coins will be 2 – the ratio of the dollar value of two oppositely directed transfers of specific BTC coins. The calculation is made for each UTXO or for the selected category, depending on the SOPR modification.

The SOPR data is superimposed on the Bitcoin price chart as a curve. The BTC price at which the SOPR ratio is above 1 is considered to be a break-even sell level.

What is SOPR indicator
SOPR indicator (curve in blue) and BTC price chart from October 2021 to September 2022. Data CryptoQuant

You can track the change in SOPR for bitcoin in real time on sites such as Decentrader And Glassnode. The chart from the latest platform is also available on TradingView. In addition, Glassnode has created similar versions of the indicator for Ethereum And Litecoin.

Modifications of the SOPR indicator

In addition to the original version of the SOPR indicator, analysts have created several modifications of this oscillator with more precise parameter settings. Consider the most famous options:

  1. Adjusted Spent Output Profit Ratio (Adjusted SOPR, aSOPR). Received the greatest distribution among other variants of SOPR due to the exclusion from the calculations of UTXO with an age of less than an hour. This approach eliminates the influence of some speculators and arbitrage traders who use BTC as a means of transit in the process of exchange or trade.
  2. Short Term Holder SOPR (STH-SOPR) Spent Exit Profit Ratio. While not as sensitive as aSOPR, STH-SOPR takes into account UTXO age greater than one hour and less than 155 days.
  3. Long Term Holder SOPR (LTH-SOPR) Spent Exit Profit Ratio. A variant of the indicator designed to analyze the long-term trends of bitcoin investors. Takes into account only UTXO with an age of more than 155 days.
SOPR Indicator Modifications for Bitcoin Price Analysis
Modifications of the SOPR indicator

Using the SOPR indicator

The SOPR indicator is one of the simplest tools for analyzing Bitcoin market cycles. The interpretation of the oscillator values ​​has only a few directions:

  • If the value is 1, it means that investors are selling bitcoin at breakeven. The purchase price is equal to the Bitcoin sale price.
  • A value greater than 1 indicates that there is an upward price trend, and investors are selling bitcoin at a profit.
  • A value less than 1 indicates a downward price trend – investors are holding losing positions or fixing losses.

Risks of using the SOPR indicator

The simplicity and popularity of the indicator does not relieve users from the risks of using SOPR when trading Bitcoin. Like other on-chain indicators, these tools are an experimental way to gauge market sentiment.

  • Interpretation. SOPR is based on the assumption that every bitcoin transfer is a purchase or sale of an asset. Such an interpretation is not a fact, and may harm the trader. No one can know at what price and when all bitcoins were sold or bought.
  • Trade. The SOPR indicator is designed to evaluate and analyze long-term trends and investor behavior in certain market conditions. Making any trading decisions based on SOPR values ​​is not included in the description of the indicator operation. Bitcoin price behavior can differ significantly from transactional data.
  • Large BTC hodlers. Any large investor or crypto exchange that has enough BTC can “spoil” the logic of the SOPR indicator and distort the data. For example, Microstrategy company, which owns almost 130,000 BTC as of September 2021, will want to change the way the first cryptocurrency is stored and move the funds to other BTC addresses. SOPR will “see” BTC movements on the network, indicating that investors are locking in positions, although this is a normal BTC transfer.

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On-chain data provides a powerful tool for Bitcoin price analysis. By understanding the underlying dynamics of the Bitcoin network and analyzing the data that is publicly available, investors and traders can gain insight into the short-term and long-term price movements of Bitcoin. On-chain data analysis is an important part of any comprehensive Bitcoin price analysis strategy, and can help investors and traders make informed decisions about when to buy and sell Bitcoin.


FAQ on On-Chain Data for Bitcoin Price Analysis

Q: What is On-Chain Data?

A: On-chain data is data related to Bitcoin transactions that are stored on the public blockchain. This data can include information about transaction amounts, wallet addresses, and block numbers. It can be used to analyze Bitcoin’s price movements and market trends.

Q: What are the Benefits of Analyzing On-Chain Data?

A: Analyzing on-chain data can provide insight into the fundamentals of the Bitcoin market. This data can be used to identify trends in the market, as well as to inform investment decisions. Additionally, it can be used to identify potential weaknesses in the Bitcoin network, such as double-spending or malicious mining activities.

Q: What Tools Should I Use for On-Chain Data Analysis?

A: There are a number of tools available for on-chain data analysis. These include block explorers, such as Blockchain.com, which provide data on Bitcoin transactions, as well as specialized tools, such as Coinmetrics, which provide metrics and analytics related to Bitcoin’s price movements.

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