Bitcoin has shown signs of recovery in its on-chain profitability since reaching lows earlier this year. However, analyst Axel Adler Jr. suggests that the market is still lacking a robust indicator to confirm a lasting reversal.
In his recent “Bitcoin Morning Brief,” Adler highlighted two significant on-chain metrics: the Bitcoin Percent Supply in Profit and the Short-Term Holder SOPR. While the first metric indicates a substantial recovery, the second suggests that recent investors are not yet confident enough to realize consistent profits.
“The rise in Supply in Profit is promising, yet short-term holders are still hesitant to secure gains,” Adler remarked. “We do not yet see the behavioral confirmation that a reversal is established.”
Current Market Situation: Indicators and Insights
As per Adler’s analysis, the Bitcoin Percent Supply in Profit has improved from a March low of 53.6% to 63.3% as of May 18. This change indicates that a larger portion of circulating Bitcoin has a cost basis below current market prices, signaling better conditions compared to the capitulation phase experienced earlier this year.
Despite this positive move, Adler noted that the current percentage is still about 10 percentage points lower than the levels observed in January, when the value surpassed 72%. Moreover, it remains below the historical average of approximately 76.9%. This indicates that Bitcoin is still in a recovery phase and has not yet reached a fully normalized state of profitability.
“Since we are still below the historical average, the market continues to navigate a recovery phase,” Adler explained. “A rise above 70% combined with stable price dynamics would mark early signs of a normalization.”
Short-Term Holders: Caution Signals
Another significant point raised by Adler involves the STH-SOPR, which measures the profitability of Bitcoin held for less than 155 days. This indicator has recovered from previous lows but has struggled to remain above the neutral threshold of 1.0. As of May 18, it registered at 0.9994, indicating that short-term holders are generally selling at a loss.
The STH-SOPR dropped below 1.0 during early February, demonstrating a clear capitulation phase for short-term investors. The gradual recovery since then had briefly stabilized in the 1.001 to 1.009 range. However, the decline back to 0.9994 signifies caution, particularly given its potential implications for overall market sentiment.
“revisiting levels below 1.0 while Bitcoin stays near $76,900 raises concerns about sustaining recent gains,” Adler stated. “If this threshold is lost, the market may face a risk of retesting March lows in Supply in Profit.”
Outlook and Risk Assessment
Currently, Adler characterizes the market as neutral but with a cautious outlook. A crucial price zone exists between $76,000 and $77,000, which could help push the STH-SOPR back above 1.0 if adequately supported by buyers. For a stronger confirmation, STH-SOPR must remain above 1.0 for five to seven trading days while Bitcoin stabilizes above the $78,000 to $80,000 range.
On the downside, Adler warns of a potential pullback to the $73,000 to $74,000 region as a significant risk. This decline could pull STH-SOPR back to between 0.98 and 0.99, interrupting the positive trend in Supply in Profit.
At the time of writing, Bitcoin is trading at $77,015.
