How Long-Term Holders Determine the End of a Crypto Bear Market

In the crypto world, the need for new funds is a key factor in the bull market next year.according to Report CryptoQuant’s SOPR ratio (calculated by dividing the SOPR of long-term holders by the SOPR of short-term holders) dropped significantly. This means increased short-term buying, which could lead to Bitcoin entering a bull market or swinging between $15,000-25,000.

In order to continue market cash flow and drive up prices, outside funding must meet the conditions for a bull market in 2023, the report said. But there is currently a bearish divergence pattern in SOPR among short-term holders, suggesting that new inflows are needed to drive prices.

Source: CryptoQuant

Output Return Spent Ratio (SOPR) is a measure of a market participant’s rate of return by comparing the value of output when it is spent with its value when it is produced. Basically, SOPR allows estimating whether the output of a spending transaction is profitable. To calculate SOPR, the dollar value of output spent at the time of expenditure (fair value) is divided by the dollar value of output spent at the time of production (value at creation).

The report highlights past trends for short-term SOPR holders, recording steady gains in 2018, 2020 and 2021. This highlights the new investment and liquidity needed to sustain money market growth.

The report’s analysis points to the same post-Luna highs and this ecosystem bubble, suggesting that the crypto market has a similar growth pattern if the conditions are met. However, declining SOPR indicates the need for new capital to sustain market growth.

The need for fresh capital will be crucial for the crypto market to enter a bull market in 2023. With the current bearish divergence of short-term SOPR holders, fresh inflows are needed to satisfy market demand. This presents an opportunity for investors to inject liquidity and take advantage of the market’s potential growth.

How Long-Term Holders Can Determine the End of a Bear Market

Defined as addresses that hold Bitcoin for more than 155 days, long-term holders are often considered the backbone of the market. They provide support by accumulating BTC during price declines, and enhance upward momentum when distributing their accumulated tokens during bull markets.

Therefore, identifying a Bitcoin bottom requires observing the behavior of long-term (LTH) holders, as the true bottom is only reached when LTH capitulates.

Output Return Ratio (SOPR) is a metric that provides a clear picture of the behavior of Bitcoin holders. When applied to LTH, it shows how much the net return of all coins in LTH wallets has moved over a specific time frame.

A SOPR value greater than 1 indicates that the token was sold for a profit, while an SOPR value below 1 indicates that it was sold at a loss. Higher SOPR trends represent profits and vice versa.

Data analyzed by Cryptoslate shows that SOPR LTH has been on an upward trend since the beginning of the year after hitting a three-year low in December 2022.

cryptocurrency bitcoin

SOPR LTH Bitcoin since 2013 until 2023 | Source: Glassnode

Unlike SOPR LTH which only considers spent outputs with a lifetime longer than 155 days, MVRV LTH only considers unspent outputs (UTXOs).

MVRV shows Bitcoin’s market capitalization and real capitalization ratio to determine whether it is trading above or below fair value. Like SOPR, this metric provides a reliable assessment of market returns because the maximum deviation between market value and fair value can be used to identify peaks and troughs.

A rising MVRV ratio suggests greater potential for unrealized profits and distributions as investors race to take profits. Declining or lower MVRV implies a smaller degree of unrealized profits, which can signal underpricing and poor demand.

When the MVRV ratio is below 1, most of the supply remains at the breakeven price or is at a loss. This is usually a sign of market capitulation, signaling the end of a bear market accumulation phase.

Analysis shows that the MVRV LTH ratio just broke above 1, indicating that the bear market may be over.

cryptocurrency bitcoin

MVRV LTH Bitcoin exchange rate from 2011 to 2023 | Source: Glassnode

Analysis of the SOPR and MVRV ratios suggests some hesitation about the end of the bear market.

The green area of ​​the chart below shows periods when both SOPR and MVRV LTH were at or below 1. When the two ratios are below 1, the market capitulates because both have coins to spend. Targets are sold at a loss, and the bulk of the circulating supply is held for unrealized losses.

cryptocurrency bitcoin

SOPR ratio and MVRV LTH Bitcoin from 2011 to 2023 | Source: Glassnode

The above analysis confirms that the market is definitely out of capitulation. However, as SOPR LTH is still trending slightly below 1, the market still lacks the confidence to participate in a full-scale rally.

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