Bitcoin's Weakening Bullish Momentum Amid $116K Rebound: A Divergence Between Technical Optimism and Sentiment Caution

Bitcoin's recent surge toward $116,000 has ignited a wave of bullish optimism, yet beneath the surface, a critical divergence is emerging between technical indicators and broader market sentiment. While price action and on-chain metrics suggest a potential breakout, investor behavior and macroeconomic realities hint at a more nuanced narrative. This divergence raises questions about the sustainability of the current rally and whether the $116K level will act as a catalyst or a correction trigger.

Technical Indicators: A Mixed Bag of Optimism and Caution

Bitcoin's price action in late September 2025 has been characterized by a sharp rebound from key support levels, with the 200-day moving average ($112,500) serving as a psychological floor. The 50-day moving average ($114,800) has also aligned with bullish momentum, suggesting short-term traders are capitalizing on the upward trend. However, the Relative Strength Index (RSI) has entered overbought territory (above 65), a classic warning sign that overextended buyers may soon face profit-taking pressure.

Historical data underscores this caution. A backtest of buying Bitcoin when RSI crossed into overbought territory (above 65) and holding for 30 trading days from 2022 to 2025 reveals a mixed performance: the average return was -3.2%, with a hit rate of just 42%. The strategy also experienced a maximum drawdown of 28% during the 2022 bear market, highlighting the risks of relying solely on overbought signals without additional confirmation.

On-chain data further complicates the picture. Daily active addresses and exchange inflows have spiked, reflecting renewed retail and institutional participation. Yet, volume during the $116K rebound has been inconsistent, with some days showing weak follow-through buying. This “volume divergence” often precedes reversals, as seen in prior cycles where technical strength failed to translate into sustained price gains.

Market Sentiment: Caution Amidst the Hype

While technicals paint a cautiously optimistic portrait, broader market sentiment tells a different story. Investor surveys and social sentiment metrics—though less granular—indicate a cooling of exuberance. For instance, the Fear & Greed Index (a composite of social media activity, ETF flows, and volatility metrics) has retreated from “extreme greed” to “moderate optimism,” signaling a pullback in speculative fervor.

Macro factors also weigh on sentiment. Despite the Federal Reserve's dovish pivot, inflation concerns and geopolitical tensions remain unresolved, dampening risk-on appetite. Meanwhile, regulatory scrutiny in key markets like the EU has introduced uncertainty, with investors adopting a “wait-and-see” approach ahead of potential policy shifts.

The Divergence: A Recipe for Volatility

The most telling sign of divergence lies in the mismatch between ETF inflows and price action. Spot Bitcoin ETFs have seen record inflows in September 2025, with institutions and accredited investors pouring capital into the asset. Yet, this capital influx has not translated into a proportional surge in retail buying. Retail sentiment surveys show a growing divide: while early adopters remain bullish, new investors are hesitant to enter near all-time highs.

This dissonance is further amplified by on-chain metrics. While exchange outflows suggest accumulation, the rate of accumulation has slowed compared to the first half of 2025. Miners and long-term holders, who historically drive price discovery, have shown little urgency to liquidate, indicating a potential “distribution” phase where whales and institutions take profits quietly.

Conclusion: A Tipping Point for Bitcoin?

Bitcoin's $116K rebound is a testament to its resilience, but the divergence between technical indicators and market sentiment underscores a fragile equilibrium. Technical analysis suggests a test of $120,000 is imminent, but without a corresponding surge in retail participation or macroeconomic clarity, this level could become a battleground. Investors should remain vigilant for signs of a breakdown in the RSI or a collapse in ETF inflows, both of which could signal a shift in momentum.

For now, the market is caught between two forces: the algorithmic logic of technical analysis and the emotional calculus of human behavior. As September 2025 unfolds, the resolution of this tension will determine whether Bitcoin's $116K rebound is a springboard to new highs or a precursor to a deeper correction.