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Spent Output Profit Ratio (SOPR)

Spent Output Profit Ratio (SOPR) evaluates the profit ratio of the whole market participants by comparing the value of outputs at the spent time to created time

Definition

Spent Output Profit Ratio (SOPR) evaluates the profit ratio of the whole market participants by comparing the value of outputs at the spent time to created time. In a simple way, you can estimate the distribution of spent transaction output is in profit or not. SOPR is calculated as the USD value of spent outputs at the spent time (realized value) divided by the USD value of spent outputs at the created time (value at creation).
SOPR=ospent outputsvalueopricespent,oospent outputsvalueopricecreated,oSOPR=\frac{\sum_{o \in \text{spent outputs}} \text{value}_o*\text{price}_{spent, o}}{\sum_{o \in \text{spent outputs}} \text{value}_o*\text{price}_{created, o}}

Steps

1. UTXO is transferred now
2. CryptoQuant locates the USD Value of the spent period and divide them by the USD Value at the created time
Simply put, SOPR = Now value/ Past value
3. Categorize and put some figures separately by span time to conclude more specific meanings

How to use SOPR for investment

By Value itself

Spent Output Profit Ratio. Source: CryptoQuant
Spent Output Profit Ratio. Source: CryptoQuant
  • SOPR value greater than 1 ( SOPR > 1 )
    It implies that the coins moved in a certain timescale are, on average, selling at a profit.
  • SOPR value of exactly 1 ( SOPR =1 )
    It implies that the coins moved in a certain timescale are, on average, selling coins at break even.
  • SOPR value less than 1 ( SOPR < 1)
    It implies that the coins moved in a certain timescale are, on average, selling at a loss.
SOPR Values Below and Above 1
SOPR Values Below and Above 1

By Examining Trend

SOPR Trending Higher and Lower
SOPR Trending Higher and Lower
  • SOPR Trending Higher SOPR trending higher implies profits are being realized and coins that were in profit are being transferred to others. Also, it could be implied that investors who sell their coins in profit are increasing their sell or market condition for sellers are getting more profitable.
  • SOPR Trending Lower 
    SOPR trending lower implies losses are being realized and coins that were in loss are being transferred to others.
    Also, it could be implied that investors who sell their coins in loss are increasing their sell or market condition for sellers are getting less profitable.

Real-World SOPR Dynamics: Investing Applied Scenario

As we delve into the practical applications of the Spent Output Profit Ratio (SOPR), We delve into its usefulness in handling diverse market scenarios, capturing the nuanced tale of market sentiment.

Bull Market

During a bull run, SOPR is a useful tool for profit realization. As prices rise, a larger coin supply turns profitable, enticing long-term holders to capitalize on gains.
  • Resurgence After Correction: Following a sentiment-driven correction, shrewd investors step in, creating demand that outpaces supply. A low SOPR (near or below 1) signals dormant profits from panic sellers.
  • Strength in Profit Distribution: When a rally intensifies the drive for profit realization, SOPR can peak successively as supply re-enters at higher profit margins.
  • Local/Macro Top Achieved: Freshly distributed supply can overwhelm demand, marking local tops or macro market tops. A high SOPR can signify substantial profit realization, considering both the absolute value and fiat value.

Bull Market Corrections

In bull market corrections, the SOPR indicator can showcase resilience as newer market participants may panic trade, while long-term holders can seize the opportunity to buy the dip.
  • Market Summit Establishment: Here, distributed supply can establish a market top.
  • Navigating the Correction: Profitable coins entering the correction can slow SOPR into a downtrend, leading to lower values.
  • Reset: Capitulation by new investors can result in a low SOPR (near or below 1), while profitable coins remain dormant, indicating conviction and the potential for panic selling.

Bull Market Reversals

As bull markets transition, SOPR provides insights into changing tides.
  • Elevated Peaks: This can indicate increasing profit realization, potentially necessitating more capital for coins sold at a higher fiat value.
  • Persistent Profitability Signals: Once this occurs, it suggests that spending on profitable coins continues during price dips, signaling a sentiment that coins are becoming expensive.
  • Low Values in Correction: When there is a price correction, it can indicate a broader market panic as investors realize substantial losses.

Bear Market

In bear markets, SOPR follows a reversal dance.
  • Summit of Supply Over Demand: Established when supply overwhelms demand, this can potentially lead to high SOPR values.
  • Local Descent in Capitulation: Investors selling at a loss during local lows can result in very low SOPR values (<1), presenting opportunities for counter-trend traders.
  • Profitable Return Phase: Once this phase is reached, counter-trend traders or long-term holders can return to profitability, with SOPR potentially trending above 1.
  • Sustained Capitulation Scenario: As the bear market potentially reaches its final capitulation, SOPR may persist below 1, indicating a period where remaining profitable coins are dormant and potentially leading to a bullish supply squeeze.

Why are Some Indicators Modified?

Modified SOPR Indicators: aSOPR, STH-SOPR, LTH SOPR
Modified SOPR Indicators: aSOPR, STH-SOPR, LTH SOPR

1) Can Less Than an Hour-Long Aged UTXO Mean Significance? (aSOPR)

aSOPR stands for adjusted SOPR( Spent Output Profit Ratio) .
It derived from the standard SOPR by excluding UTXOs that has input-output span that are aged less than an hour long.
If there are too many UTXO that are being generated recently, the indicator's value will be made equal to the number of 1 which would mean that many UTXO are at even.

2) What if long/short aged UTXO specifically suffer from loss? (LTH-SOPR, STH-SOPR)

LTH-SOPR stands for Long Term Holder - SOPR ( Spent Output Profit Ratio).
It derived from the standard SOPR by leaving only the UTXO that are aged more than 155 days.
STH-SOPR stands for Short Term Holder - SOPR ( Spent Output Profit Ratio).
It derived from the standard SOPR by leaving only the UTXO that are aged less than 155 days and more than an hour alive.