Bitcoin (BTC) Faces Near-Term Correction Risks: Key Indicators Highlight Weakness

Bitcoin (BTC) is showing signs of potential short-term downside, with three critical factors—hidden RSI bearish divergence, unaddressed CME gaps, and the distribution phase of the Bitcoin Cycle Indicator (IBCI)—pointing to increased volatility ahead. Currently trading at $118,616, Bitcoin is flirting with the possibility of forming a new weekly low, urging traders to exercise caution in the face of these bearish signals.

RSI Bearish Divergence Suggests Weakening Momentum

A hidden bearish divergence in Bitcoin’s Relative Strength Index (RSI) highlights waning price momentum. RSI, a widely used technical indicator for gauging the strength of asset price movements, flags bearish divergence when Bitcoin’s price forms higher highs, while the RSI fails to match these highs or creates lower highs. This divergence often serves as a precursor to a price correction and a notable dip in market momentum.

Similar conditions played out in March 2024, preceding a rapid 20% drop in Bitcoin's value over a matter of days. The emerging RSI divergence suggests a similar pattern could materialize, with analysts projecting a potential short-term decline that may establish a new interim price low.

CME Gap Amplifies Downside Pressure

On Bitcoin’s daily chart, a prominent CME gap between $114,380 and $115,635 has emerged as an additional bearish factor. CME gaps develop when the asset trades outside the Chicago Mercantile Exchange’s regular market hours, leaving unfilled price zones that Bitcoin historically tends to revisit.

Historical data underscores Bitcoin’s consistent behavior of “filling” these gaps, with 7 out of 9 major gaps since the platform's introduction addressed by 2025. The latest unfilled gap indicates a potential price retracement towards the $114,000 level. Moreover, a smaller CME gap between $91,970 and $92,450 remains unfilled, adding to the likelihood of Bitcoin revisiting these lower price ranges as part of its corrective tendencies.

Distribution Phase of Bitcoin Cycle Indicator Indicates Overheating

Adding to concerns, the Bitcoin Cycle Indicator (IBCI) has transitioned into a distribution phase, a cyclical stage typically associated with profit-taking, market overheating, and potential mid-cycle peaks. This marks the third instance of the distribution phase during the ongoing bullish cycle.

According to “Gaah,” a respected crypto analyst, the IBCI recently hit 80%, shy of its prior cycle peak of 100%. Gaah emphasizes that while the current value doesn’t signal an imminent end to the bull run, it does serve as a critical warning of heightened correction risks. Supporting indicators like the Puell Multiple and Short-Term Holder Spent Output Profit Ratio (STH-SOPR) also suggest muted optimism, with these metrics lingering below neutral levels.

“Although we haven't hit the climactic levels seen during prior cycle peaks, the current phase of the IBCI raises the probability of short-term corrections. It’s a phase more indicative of cooling momentum rather than a definitive cycle-ending event,” Gaah stated.

Balancing Long-Term Optimism with Near-Term Caution

Despite these short-term bearish signals, Bitcoin’s long-term upward trend remains intact, with its fundamental outlook supported by strong adoption and growing institutional interest. However, market analysts are unanimous in advocating caution as Bitcoin navigates through these volatile conditions.

The interplay of factors like the hidden RSI bearish divergence, pending CME gap fills, and the IBCI’s distribution phase suggests that traders should prepare for potential downward pressure on Bitcoin’s price in the immediate term. As the market assesses these developments, volatility is expected to remain elevated, demanding vigilance from both retail and institutional participants.