Definition ∞ Profit ratio divergence occurs when the realized profit ratio of an asset’s holders moves in an opposite direction to the asset’s price trend. For instance, if the price is falling but the profit ratio among transacting entities is rising, it suggests that fewer entities are selling at a loss. This metric helps identify potential shifts in market sentiment and selling pressure. It can signal a weakening of a current trend or the formation of a price bottom.
Context ∞ In cryptocurrency markets, profit ratio divergence is a sophisticated on-chain metric employed by analysts to detect underlying shifts in investor behavior. A divergence often indicates that smart capital or long-term holders are accumulating, even as prices decline, suggesting that selling pressure from those experiencing losses is decreasing. Interpreting this signal requires careful consideration alongside other market indicators to confirm its predictive value.
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