Bitcoin Shows Bearish Signals as the Market Overheats

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Bitcoin fell to $95,800 in the past 24 hours before recovering to its current price. As Bitcoin nears $100,000, questions are being raised about the sustainability of the rally. While investors are excited, some signs suggest caution.

Technical Analysis

On the daily chart, Bitcoin is showing a strong upward trajectory after breaking out of a sideways phase around $65,000 just a few weeks ago. The Relative Strength Index (RSI) is currently at 78.6, signaling that Bitcoin is in overbought territory. Historically, RSI readings above 70 are often a sign of short-term corrections as investors start to take profits.

In addition, the Bollinger Band indicator shows that the price is approaching its upper limit, suggesting increased volatility. The 20-day moving average is currently lagging the spot price significantly, raising the possibility that the price could correct back to the mean, especially if profit-taking pressure is strong.

On-chain analysis

The Spend Output Profit Ratio (SOPR) chart – a measure of how profitable Bitcoin transfers on-chain are – has been steadily rising alongside the price. Over the past week, the SOPR reached 1.08, indicating a significant improvement in realized profits.

Traditionally, high SOPR levels like the current one coincide with local tops, as investors tend to increase profit-taking during bull markets. If the SOPR were to drop sharply, it would signal increased selling pressure, potentially triggering a significant correction. The spike in SOPR has now stalled, with the index falling to around 1.04.

Another worrying signal comes from the Bitcoin Funding Rate chart, which shows a sharp increase across many major exchanges. Funding rates turn positive when long positions dominate the market, but high levels reflect over-leverage. Currently, the funding rate is approaching levels seen at the peak of the 2021 bull market, suggesting that speculative enthusiasm may be reaching extreme levels.

If a correction occurs, over-leveraged positions are at risk of being liquidated en masse, which could exacerbate selling pressure and push prices further down.

While Bitcoin’s rally is historic, the convergence of factors such as an overbought RSI, high SOPR values, and a spike in funding rates are all warning signs that the market is overheating.

A healthy correction not only helps reduce speculative pressure but also creates an opportunity for the market to reset, paving the way for long-term sustainable growth instead of continuing to chase speculative fever.