The past week has seen Bitcoin (BTC) experience a significant decline, falling 11% between January 7th and 9th. This downturn broke the $92,000 level for the first time in nine days. The subsequent liquidation of over $257.5 million in leveraged long positions and profit-taking, strong economic data, and uncertainty surrounding US President-elect Donald Trump’s upcoming inauguration have all contributed to this bearish momentum.
However, three key data metrics suggest that this drop may have marked a local bottom for BTC, presenting a buying opportunity for investors.
SOPR Drop Hints at Bitcoin Price Bottom
On-chain data reveals that Bitcoin’s Spent Output Profit Ratio (SOPR) dropped to 0.98 on January 10th. This indicates that short-term holders (STHs), those who have held BTC for less than 155 days, are selling at a loss.
CryptoQuant Highlights the Importance of SOPR
Market intelligence firm CryptoQuant stated in a January 9th post on X: "In the past 24 hours, 36.4k Bitcoin have been transferred from Short-Term Holders to Exchanges, with the Spent Output Profit Ratio (SOPR) dropping below 1."
Understanding SOPR
The SOPR measures the profit or loss of spent BTC outputs by comparing their value when last moved to their value when they are spent again. The short-term SOPR focuses on coins moved in less than six months and can be used to indicate market sentiment.
A value of less than 1 might suggest capitulation or a market bottom, potentially signaling a good time to buy. This scenario has often preceded price recoveries, indicating a potential buying opportunity.
Historical Precedents
When SOPR fell to 0.90 following Bitcoin’s drop to $49,577 on August 5th, 2024, it was followed by a 31% recovery in price to $65,103 three weeks later. More recently, BTC’s 62% rally to all-time highs above $108,000 between November 5th and December 17th, 2024, was preceded by a drop in the SOPR ratio below 1 on November 4th.
Investor Sentiment
Some investors saw the drop to $92,000 as an opportunity to buy, interpreting the price action as a shakeout of weak hands rather than a new bear cycle. Bitcoin investor Sean Buckley stated: "Adding some BTC spot here at $92.8k–frustrating price action, but have to buy these major support areas." He also noted that "Bitcoin’s $92k range would be the area to bounce hard if we’re going to bounce."
BTC Entity-Adjusted Dormancy Flow Flashes Green
Another metric used to determine whether the Bitcoin market has bottomed out is the entity-adjusted dormancy flow. This represents the ratio of BTC’s current market capitalization and the annualized dormancy value (measured in US dollars).
Historically, a drop in the indicator below 250,000 presents a ‘good historical buy zone’ and has often preceded significant price recoveries or marked the end of price corrections.
Bitcoin Entity-Adjusted Dormancy Flow
Source: Glassnode
The indicator dropped from 260,278 on December 16th to reach a low of 210,000 on January 9th. Historically, breakouts above 250,000 after a previous dip have coincided with the beginning of significant bull runs.
One instance is when Bitcoin bottomed out in July 2021 and began a new bull run, with the metric falling into the green zone. Bitcoin went on to hit a record high of $69,000 on November 10th.
Long-Term Supply Distribution Has Peaked
Additionally, the percentage of Bitcoin supply held by long-term holders (LTHs) reached the lowest since December 6th, 2024. This suggests that the market might be transitioning from a distribution phase to accumulation, which historically aligns with market bottoms.
Glassnode Explains the Phenomenon
In a January 10th X post, Glassnode stated: "In past cycles, price continued to climb even after LTH distribution peaked. This infers that a peak in distribution doesn’t always align with an immediate macro top."
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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