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Analyzing the Short Term Output Profit Ratio (STH-SOPR) Indicator for Bitcoin Transactions: Trends and Implications for Short-Term Investors
The STH-SOPR (Short Term Output Profit Ratio) indicator is a tool that measures the profitability of Bitcoin transactions held for a period ranging from one hour to 155 days. It is calculated by dividing the dollar value of the sold Bitcoins (realized value) by their dollar value at the time of acquisition (creation value). This indicator focuses solely on short-term transactions, excluding movements of Bitcoins held for less than an hour or more than 155 days. Therefore, it covers Bitcoins with an age between one hour and 155 days. If the value of STH-SOPR is greater than 1, it means that, on average, Bitcoins are sold at a profit. If it is exactly 1, the Bitcoins are sold without any gain or loss. If it is less than 1, it means that the Bitcoins are sold at a loss. An increase in the value of STH-SOPR indicates that trading conditions are becoming more profitable for short-term investors. Conversely, a decrease in this value indicates that these conditions are becoming less profitable. Regarding the trend you could observe on the graph below, STH-SOPR has been declining since its peak in March 2023 when Bitcoin went from $19,800 to $28,000 USD. This suggests that short-term investors are selling their Bitcoins under increasingly less profitable conditions, which could indicate caution or pessimism among them. They might be selling at a loss or without realizing a profit.