Why This Bearish Bitcoin Divergence Could Be Fatal For The BTC Rally

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A quant explained how this bearish divergence in Bitcoin on-chain data can lead to a short-term correction in the price.

Short-Term Bitcoin Holder SOPR Slowed Despite Price Rise

As one analyst explained in an article on CryptoQuant, a gap has formed between the purchasing power of short-term holders and the price of BTC. The relevant indicator here is the “Spent Output Profit Ratio” (SOPR), which tells us whether investors in the Bitcoin market are selling their coins at a profit or a loss right now.

When the value of this metric is greater than 1, it means that the overall market is currently making some profit. On the other hand, values ​​below the threshold suggest that the average holder is experiencing a loss right now. Naturally, the indicator exactly equal to 1 implies that investors are just breaking even on their investment.

The “short-term holder” (STH) group is a cohort of Bitcoin that includes all investors who purchased their coins less than 155 days ago. The STH SOPR thus measures the rate of profit from the sales made by these holders. To properly gauge the behavior of this band, the analyst uses a “rate of change” (ROC) oscillator for the indicator. Here is a chart comparing this momentum oscillator with the price of BTC over the past few months:

Looks like the metric has gone down in recent days | Source: CryptoQuant

As shown in the chart above, the ROC of Bitcoin STH SOPR was in dark red when the FTX crash occurred, suggesting that these investors capitulated during it and made a significant loss. However, as the price of BTC slowly improved from the lows, the ROC turned green. This implies that STHs that bought during the dips sold for profits, causing the SOPR to rise.

Bitcoin continued to see an upward trend recently, but strangely the STH SOPR ROC dropped. This could be a sign that few STHs were able to buy during these lows, suggesting that their buying power is currently low. If they had been buying during this rally, they would have continued to reap more and more profits as the price rose, but that clearly has not been the case.

Such divergence also formed in the relief rally seen earlier in the bear market, as the quant marked in the chart. “Last time, this situation led to a bearish correction,” notes the analyst. “If this alignment repeats, then this time Bitcoin may correct into the $16,500-$17,000 range.”

BTC soars | Source: BTCUSD on TradingView

As of this writing, the price of Bitcoin is hovering around $17,700, up 5% in the past week.

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