This was a DATA ERROR. I spoke to Glassnode’s CTO during the cascade of liquidations and can confirm this was a wallet labelling error from an upstream data provider. (What we were actually seeing was an internal movement of coins inside Gemini exchange.) During this time, investment flows continued into Bitcoin’s network unabated with no shake-out of new investors. We can see this in the chart below where SOPR climbed against the sell off.
This is VERY unusual occurrence. SOPR can only climb against a price decline when recent buyers hold their coins, and new buyers are stepping in to buy the steady stream of coins being offered by sellers who bought a while ago carrying greater profit. In summary, new investors bought the dip while traders buying on leverage were liquidated.
An additional odd occurrence in the crypto markets is that the Grayscale Bitcoin Trust is now trading at a discount to NAV. This is not the first time the fund has traded below book value and the trust has underperformed the bitcoin price by a considerable margin since March 2020. That suggests the aggressive fee structure and increasing availability of alternative vehicles for investing in bitcoin have robbed the fund of customers.
Here is a definition of SOPR from Interdax
The Spent Output Profit Ratio (SOPR) is an indicator that tracks overall market profit and loss using data from Bitcoin’s blockchain created by Renato Shirakashi. As a measure of the average investor’s profit or loss, the SOPR measures the variation between the purchase price and the sale price of coins moved on-chain.
The calculation for the SOPR is:
realised spent value of an output (in USD) / value at creation of output (in USD)
If the SOPR is greater than one then it tells us that, on average, people are selling at a profit. On the other hand, if the SOPR is less than one, then it tells us that the average person is selling bitcoin at a loss.
This suggests the current correction is a shakeout of leveraged traders. As long as we still have a series of ranges one above another the trend will remain reasonably consistent.