On-chain data shows a Bitcoin indicator is currently retesting a crucial level that could decide the direction the market takes from here.

As pointed out by an analyst in a CryptoQuant post, the short-term holders are currently selling at their break-even mark. The relevant indicator here is the “Spent Output Profit Ratio” (SOPR), which tells us whether Bitcoin investors are moving their coins at a profit or at a loss right now.

When the value of this metric is greater than 1, it means the average holder in the market is currently selling their coins at a profit. On the other hand, the indicator having values below this threshold suggests the market as a whole is realizing a net amount of loss.

The level at which SOPR becomes exactly equal to one implies that the loss realization is exactly equal to the profit realization right now, and hence, the average investor is just breaking even on their investment.

In the context of the current topic, the entire market isn’t of interest; only a segment of it: the “short-term holders” (STHs). The STHs include all BTC investors that bought their coins within the last 155 days.

Now, here is a chart that shows the trend in the 14-day moving average (MA) Bitcoin SOPR specifically for these STHs over the last few years:

Historically, the Bitcoin STH SOPR has followed a curious pattern. During bullish periods, the indicator has generally stayed above the line where the metric’s value becomes 1. This makes sense, as rallies allow the STHs many profit-taking opportunities, so the majority should be selling at some gains.

What’s actually interesting, though, is that whenever the metric has dropped to the 1 line, it has provided support to the price (and has also made the indicator rebound back above it). Examples of this have been marked with the green arrows in the graph.

As already mentioned before, the 1 line signifies the level where the average STH is just breaking even, meaning that they are selling at the price at which they acquired their coins, that is, their cost basis.

The reason why this level acts as support during bullish trends is that the investors see their cost basis as a profitable buying opportunity (since they believe the price would go up in the near future). So, a large amount of buying takes place here.

In bear markets, the opposite behavior is seen; the level acts as resistance to the price since selling tends to happen at it. Because of this pattern, the indicator’s behavior about the 1 level can provide hints about whether a bullish or a bearish regime is active currently.

Recently, the indicator has once again dipped to this crucial level. If the Bitcoin rally is still on right now, then the Bitcoin STH SOPR should observe a rebound here. This has already happened once during this rally, as the price felt support at this level back in March.

If, however, the retest ends up failing, then it may mean that a transition back to a bearish period may have occurred for the cryptocurrency.

At the time of writing, Bitcoin is trading around $27,000, down 2% in the last week.

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