Why This Bitcoin Bearish Divergence Could Spell Doom for BTC Rally

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

Short-term Bitcoin holder SOPR has declined despite the price going up

As explained by an analyst in a CryptoQuant post, a gap has formed in the purchasing power of short-term holders and the BTC price. 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 realizing some profit at the moment. On the other hand, values ​​below the threshold suggest that the average holder is seeing some loss at the moment. Naturally, the indicator of exactly equal to 1 suggests that the investors are only breaking even on the investment.

The “short-term holder” (STH) group is a Bitcoin cohort that includes all investors who bought their coins less than 155 days ago. STH SOPR thus measures the profit ratio for sales carried out by these holders. To correctly assess the behavior of this group, the analyst uses a “rate of change” (ROC) oscillator for the indicator. Here is a chart comparing this momentum oscillator to the BTC price over the last few months:

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

As the graph above shows, the ROC of Bitcoin STH SOPR had been in the deep red when the FTX crash took place, suggesting that these investors capitulated under it and realized a huge loss. However, as the BTC price has slowly recovered from the lows, ROC has turned green. This means that the STHs who bought during the downturns have sold for a profit, which has led to a rising SOPR.

Bitcoin has continued to see an upswing recently, but strangely, the STH SOPR ROC has fallen off. This could be a sign that not many STHs were able to buy during these downturns, suggesting that their purchasing power is currently low. If they had bought through this rally, they would have continued to reap more and more profits as the price goes up, but that clearly hasn’t been the case.

Such a deviation also formed in the relief rally that was seen earlier in the bear market, as the quantity has marked in the diagram. “Last time this situation led to a bearish correction,” notes the analyst. “If this adjustment repeats, Bitcoin could this time correct to the $16,500-$17,000 range.”

BTC surges up | Source: BTCUSD on TradingView

At the time of writing, Bitcoin’s price is hovering around $17,700, up 5% in the past week.