Understanding the SOPR metric: STH and LTH indicators for reading market cycles

In the cryptocurrency market, where prices can change by dozens of percent within hours, investors need reliable tools to determine the current market condition. Among the most effective indicators that help understand the behavior of market participants are the SOPR metrics — in particular, STH SOPR and LTH SOPR.

How do SOPR indicators work?

SOPR (Spent Output Profit Ratio) is a metric that compares the selling price to the purchase price for different groups of cryptocurrency holders. The fundamental difference between STH SOPR (short-term holder profitability indicator) and LTH SOPR (long-term holder profitability indicator) lies in the time horizons of asset ownership.

STH SOPR reflects whether participants who held coins for a short period are selling their assets at a profit or a loss. LTH SOPR, in turn, shows the average return of investors who hold cryptocurrencies for months or years. When both indicators exceed one, it signals that both groups of holders are generally realizing profits.

SOPR as a market phase indicator

The dynamics of STH SOPR and LTH SOPR provide a clear picture of the current market phase. During an uptrend, both indicators are consistently above the 1 mark, meaning that both new participants and experienced investors are earning. This is a period of high optimism when demand significantly exceeds supply, and most transactions close with a profit.

The opposite situation develops in a downtrend when both SOPR indicators fall below 1. During this period, both short-term and long-term holders are forced to sell at a loss, indicating pronounced investor pessimism and excess supply in the market.

The most informative moment occurs when SOPR metrics approach the neutral mark of 1 or cross it. This often coincides with market reversal points — periods when participant sentiment changes dramatically. Divergence between STH SOPR and LTH SOPR also carries important information: if the short-term holder indicator falls faster than the long-term one, it may indicate panic among more active traders while long-term investors maintain their faith.

Practical application in trading

Experienced traders use SOPR indicators as part of comprehensive analysis, combining them with price action and trading volumes. When STH SOPR and LTH SOPR simultaneously reach extreme values, it often coincides with key buy or sell points. However, relying solely on these metrics would be a mistake — they work most effectively as confirming signals to the main trading strategy.