Bitcoin prices continue to climb higher, leaving few pullback opportunities so far for those who failed to buy below $20,000.
The price action in BTCUSD on a weekly basis, according to the Relative Strength Index, has reached the critical line that separates the bear market from the bull market. Anything higher, and crypto could experience a full breakout. Let’s have a look.
What Relative Strength Tells About Cryptocurrencies
The Relative Strength Index is a popular technical indicator used in cryptocurrencies, originally created by J. Welles Wilder in the 1970s.
The tool measures momentum through “the speed and magnitude of price movements,” according to Wikipedia. A reading above 70 may indicate an overbought situation, and a drop below 30 indicates an oversold market.
In rare cases, the RSI will remain very hot reflecting a very strong trend. Most of the time it stays between 30 and 70 when the price consolidates or tilts.
In the higher timeframes, passing the middle zone in the RSI can send the lower timeframes through the roof – or through the floor.
In the case of the BTCUSD weekly chart, the RSI suggests that this exact line in the sand now separates what could be a full breakout into a bull market – or a harsh rejection.
Violation of this level in the RSI leads to a bullish rally | BTCUSD on TradingView.com
Bitcoin Hits Critical Line In The Sand Between Bear & Bull Markets
Looking back at the history of Bitcoin, the pressure above about 55-56 in the RSI has in the past led to an extraordinarily bullish movement. Falling below that caused the biggest decline and a bear market.
Even worse, as BTCUSD weekly finds itself at the main trigger level, rejection has led to some brutal moves. In 2014 the rejection from there started the second phase of the bear market. In 2015, the bull market’s attempts to hold the market position were strongly rejected.
The latest case of the 2020 bull market being rejected and combined with the onset of COVID, led to the collapse of Black Thursday. Considering the importance of the level and the fact that some of the worst rejections have taken place when the RSI reaches that reading, it is not surprising that investors remain skeptical and cautious.
If Bitcoin can make it above the current zone in the Relative Strength Index, the bull market can return in an instant. Currently, the BTCUSD daily chart shows a very high RSI, in an overbought condition. However, the extended phase of the daily RSI level supports bull market behavior, and may indicate that the higher weekly and longer-term RSI may approach overbought levels at some point in the future.
Beware of shorting #Bitcoin when the RSI is elevated. pic.twitter.com/YHus8lR6dG
– Tony “The Bull” (@tonythebullBTC) January 17, 2023