Bitcoin approaching crucial retest: Which historical pattern will repeat?

Bitcoin approaching crucial retest: Which historical pattern will repeat?

Which Pattern Will Bitcoin Follow Next: 2016 Or 2019?

The Bitcoin market is currently at a crucial juncture, with on-chain data indicating a retest that could determine the cryptocurrency’s future direction. One key indicator to watch is the “Spent Output Profit Ratio” (SOPR), which reveals whether Bitcoin investors are currently selling their coins at a profit or at a loss.

When the SOPR is above 1, it means that the average holder in the market is realizing profits from their selling activity. Conversely, values below 1 suggest that losses are being realized and dominate the market sentiment. A SOPR exactly equal to 1 indicates a neutral market, where profits and losses cancel each other out.

While the SOPR represents the entire Bitcoin market, in this discussion, we focus on a specific segment called “short-term holders” (STHs). These are investors who purchased their coins less than 155 days ago and are generally considered to be more reactive to market fluctuations.

Analyzing the trend in the 90-day and 365-day moving averages (MAs) of the Bitcoin STH SOPR over the past few years provides valuable insights. The chart below illustrates this trend:

Bitcoin STH SOPR Trend
Bitcoin STH SOPR Trend

The yellow line represents the 90-day MA, while the blue line represents the 365-day MA. Both metrics have recently been above the baseline, indicating a shift towards profit selling by short-term holders. This pattern has been observed in previous major rallies in the cryptocurrency market.

Interestingly, while the 365-day MA has climbed above the baseline during the latest leg of the Bitcoin rally above $30,000, the 90-day MA has been heading downwards. It is now approaching the 1 baseline and is about to cross below the 365-day MA.

To gain further insights, let’s examine two previous instances where a similar trend occurred. In 2016, when the 90-day MA of the STH SOPR retested the 1 mark after a similar structure had formed, it found support at the break-even mark. This rebound propelled Bitcoin into a bull market.

However, in 2019, the retest of the 90-day MA STH SOPR failed, leading to a bearish trend and a prolonged period of negative sentiment. It took 160 days for bullish sentiment to return and the market to rally again.

Given the current position of the Bitcoin market, which resembles these two historical occurrences, it remains to be seen which pattern the asset might exhibit this time. Will it follow the path of 2016 and continue the bullish trend, or will it replicate the bearish sentiment of 2019?

BTC Price

At the time of writing, Bitcoin is trading around $30,300, representing a 1% decrease over the past week.

BTCUSD Chart

BTC Price Chart (BTCUSD on TradingView)

In conclusion, analyzing the Bitcoin market based on the SOPR indicator provides valuable insights into the behavior of short-term holders. The current position of the 90-day MA STH SOPR relative to the 1 baseline and the 365-day MA suggests a critical retest that could determine the future direction of the cryptocurrency. By examining historical patterns, we can gain some perspective on potential outcomes. However, as with any market, it is essential to remain cautious and consider other factors that may impact Bitcoin’s price and market sentiment.