On January 7-9, Bitcoin (BTC) experienced a significant price drop of 11%, breaking below the $92,000 level for the first time in nine days. This decline led to the liquidation of over $257.5 million in leveraged long positions and coincided with profit-taking and uncertainty surrounding US President-elect Donald Trump’s upcoming inauguration.
Despite Short-Term Bearish Momentum, Three Data Metrics Indicate a Local Bottom
While this short-term bearish momentum may be concerning for some investors, three data metrics suggest that the drop to $92,000 may have marked the local bottom for BTC, providing a good entry point 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 10, suggesting that short-term holders (STH) are selling at a loss. The recent drawdown in Bitcoin price is ‘driven by short-term holders realizing losses,’ according to market intelligence firm CryptoQuant.
What is SOPR?
SOPR measures the profit or loss of spent Bitcoin outputs by comparing the value of coins when they were 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.
Historical Context
When SOPR fell to 0.90 following Bitcoin’s drop to $49,577 on August 5, 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 5 and December 17, 2024, was preceded by a drop in the SOPR ratio below 1 on November 4.
Investor Insights
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. "Adding some BTC spot here at $92.8k—frustrating price action, but have to buy these major support areas," said Bitcoin investor Sean Buckley.
BTC Entity-Adjusted Dormancy Flow Flashes Green
Another metric that can be used to determine whether the Bitcoin market has bottomed out is the entity-adjusted dormancy flow, which 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.
Historical Breakouts
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 10.
Bitcoin Long-Term Supply Distribution Has Peaked
Additionally, the percentage of Bitcoin supply held by long-term holders (LTHs) reached the lowest since December 6, 2024. This means that distribution by LTHs has occurred over the last month, perhaps driven by profit-taking following Bitcoin’s run to all-time highs above $108,000.
Transitioning from Distribution to Accumulation
The reduced rate of LTH supply distribution suggests that the market might be transitioning from a distribution phase to accumulation, which historically aligns with market bottoms. Explaining this phenomenon in a January 10 post on X, Glassnode said:
"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."
Conclusion
While every investment and trading move involves risk, three data metrics suggest that the drop to $92,000 may have marked the local bottom for BTC. Investors should conduct their own research when making a decision.
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