Bitcoin has now plunged under the $28,000 level, but the data of an on-chain indicator may suggest that this drop could only be temporary.

As pointed out by an analyst in a CryptoQuant post, the current values of the metric have generally served as ideal buying opportunities during rallies in the past.

The relevant indicator here is the “Spent Output Profit Ratio,” which tells us whether the average Bitcoin investor is selling their coins at a profit or at a loss right now.

When this indicator has a value greater than 1, it means the profits being realized in the market are currently greater than the losses. On the other hand, values below this threshold suggest a dominance of loss-taking from the holders.

The SOPR being exactly equal to 1 naturally corresponds to a neutral state, where the average holder is just breaking even on their investment, as profits are equal to losses here.

While the SOPR is generally defined for the entire Bitcoin market, it can also be applied to specific segments of the market. In the context of the current discussion, the “short-term holder” (STH) segment is of interest.

The STHs make up a cohort that includes all investors who have been holding onto their coins since less than 155 days ago. The STHs who manage to hold beyond this threshold enter into the “long-term holder” (LTH) group.

Now, here is a chart that shows the trend in the Bitcoin STH SOPR over the last few years:

As displayed in the above graph, the Bitcoin STH SOPR was below the 1 mark during last year’s bear market, suggesting that the average STH had been selling at a loss in this period.

This is the typical behavior observed in bearish periods, as the constant price decline makes investors panic and sell at losses. An interesting pattern that is seen during such periods is that the line where SOPR attains a value of 1 starts providing resistance to the asset.

The reason this happens is that at this level, the STHs are selling at the price they bought in. During bear markets, they usually go into losses, so whenever they find the opportunity to sell to recoup their original investment, they jump right on it. This is why the level provides resistance and forces the indicator to stay under it.

The opposite behavior is seen in price rallies, however, as holders start looking at the break-even level as a profitable entry point, which leads to a large amount of buying taking place at the level. This assures that the indicator quickly returns above the 1 level if it falls below it.

From the chart, it’s visible that the rally this year has also seen a similar trend so far, as the Bitcoin STH SOPR has maintained above 1 (besides a temporary drop in March, which ended up resulting in a sharp surge in the price).

In the last few days, the indicator has again plunged to this level of much historical significance as the price has slipped under $28,000. If the past pattern is anything to go by, a rebound could become more probable for the BTC price here.

At the time of writing, Bitcoin is trading around $27,600, down 1% in the last week.

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