This year, Bitcoin has caved in to external pressure, posting multiple declines and holding other cryptoassets flat despite efforts by investors to prop up prices. In the first half of 2022, the cryptocurrency fell by approximately 75% to trade below $19,000 for the first time since December 2020.
Ethereum was not spared the selloff, plunging over 81% to a multi-year low of $886 despite hitting an all-time high of $4,800 in early November. The global cryptocurrency market capitalization also lost over half of its value, from $2.9 trillion to just under $1 trillion.
Activity in the chain presses on the lowest levels
Despite intense price action, the price drop coincided with a gradual deterioration of their overall network usage and BTC and Ether network congestion. According to the latest report from Glassnode, Ether gas prices have dropped to just 17.5 Gwei, with BTC fees falling to the lowest level since May 2020. Transaction demand and active addresses on the two networks have also witnessed a gradual decline since May 2021.
“With the exception of a few peaks of activity higher during major capitulation events, the current network activity suggests that there is still little influx of new demand.”wrote Glassnode.
SOPR – the Silver for BTC, ETH Resurgence?
Despite the two largest networks showing insufficient activity in the chain, the SOPR indicator (Spent Output Profit Ratio) has shown signs of improvement. The SOPR indicator captures the average profit or loss realized by the market on used coins.
If the indicator rises above 1.0, it indicates that more profits are being realized, signaling that the market has enough demand to push prices higher. In contrast, when the indicator falls below the 1.0 value, investors take larger losses, which means that coins are sold below the average cost.
Currently, Bitcoin SOPR is trying to break above the 1.0 value after a failed attempt in June. “Usually the market requires several attempts before escape velocity can be reached. An ideal bullish scenario would be a break above 1.0, and then a retest, to find support.” wrote Glassnode.
Ethereum’s SOPR has crossed the 1.0 mark and is currently being retested at support, an encouraging indication that the cryptocurrency may soon be out of the woods.
That said, while both Bitcoin and Ethereum have seen excellent price pullbacks coming from highly oversold conditions, investors may want to continue to look at the SOPR and other indicators showing demand activity to gauge whether the ongoing relief rally can sustain or even better, turned into a full-fledged bull market.