On-chain data shows a Bitcoin indicator has been forming a bearish divergence for a while now, a sign that the top may be close for the asset.
Bitcoin Short-Term Holder SOPR Has Been Moving Opposite To Price Recently
As an analyst in a CryptoQuant Quicktake post, a bearish divergence has been brewing in the Bitcoin short-term holder SOPR recently. The “Spent Output Profit Ratio” (SOPR) indicates whether Bitcoin investors are selling at a profit or at a loss right now.
When the value of this metric is less than 1, it means that the average holder in the sector is transferring their coins on the blockchain at a net amount of loss currently. On the other hand, values under the threshold imply profit-taking is the dominant form of selling among the investors.
The SOPR being equal to 1 suggests the amount of profits being harvested are precisely canceling out the losses in the market, so the holders could be imagined to be just breaking even on their selling.
This indicator can also be defined for only a specific portion of the market, and in the context of the current discussion, that segment is the “short-term holders” (STHs).
The STHs include all the investors who bought their coins within the past 155 days. This cohort is the fickle-minded side of the market, who may sell at the first sight of instability.
Now, here is a chart that shows the trend in the 7-day exponential moving average (EMA) Bitcoin SOPR for these STHs over the past year:
Looks like the 7-day EMA value of the metric has been going down in recent weeks | Source: CryptoQuant
As is visible in the above graph, the quant has highlighted a specific pattern that the Bitcoin price and the 7-day EMA Bitcoin STH SOPR appear to have followed during this period.
It would appear that the metric registering a decline while the price heads up has turned out to be a bearish divergence for the cryptocurrency, as a top has been hit not too long after this kind of trend has formed.
The STH SOPR going down this way suggests a worsening of the market sentiment as investors move to selling at as little profit as possible rather than holding for better opportunities.
The chart shows that the 7-day STH SOPR has been observing a downtrend during the past month, but the asset’s price has seen a net uplift in this period.
Naturally, if the instances of this pattern from the past year are anything to go by, Bitcoin might be moving towards a local top right now.
BTC Price
At the time of writing, Bitcoin is trading around the $37,800 level, up 3% in the past week.
BTC seems to have been moving sideways over the past few days | Source: BTCUSD on TradingView
Featured image from Shutterstock.com, charts from TradingView.com, CryptoQuant.com