The bitcoin price is on the verge of a free fall, and cryptocurrency enthusiasts are in panic. High-risk, speculative assets are living up to their notorious volatility. The selling seems unstoppable.
All assets eventually become too expensive and the recovery process begins. BTCUSD’s weekly RSI is now at its most oversold point in all of history, which includes two bottoms during bear markets.
Bitcoin Selloff sets a new record for the most oversold weekly RSI ever
Bitcoin prices today are below $22,000 per bitcoin and will soon approach the 2017 peak. In a remarkable move, many altcoins including Ethereum have moved below their previous bull market peak.
Panic ensues. Many top exchanges have stopped withdrawing coins and are now better able to assess the situation. Selling pressure also drove the weekly Relative strength Index to its most oversold levels since Bitcoin’s inception.
Bitcoin Drops To 18-Months Lows, Has The Market Seen The Worst Of It?| Bitcoin Drops To 18-Months Lows, Has The Market Seen The Worst Of It?
J. Welles Wilder Jr. created the Relative Strength Index in 1970. It is a widely-used momentum oscillator. Wilder also created the Average True Range and Average Directional Index as well as the Parabolic SAR. This tool is used for determining when assets have become too expensive or too valuable.
What could it mean and what may happen next, given that BTCUSD has been historically sold on weekly times using the RSI?
Source: BTCUSD on TradingView.com| Source: BTCUSD on TradingView.com
Compare The Crypto Collapse and Past Bear Market Bottoms
The BTCUSD weekly chart can be seen visually. It is at the same level of two previous bear market bottoms. Any readings lower than the threshold of 30 will be considered too high. Readings above 70, however, are considered to be overbought.
For 2015 and 2018, the bear market bottoms, 28.41 & 28.72 are more precise. BTCUSD’s current value is below 28, which marks the lowest level ever recorded on weekly timeframes.
Read Related Reading| Bitcoin Bear Market Comparison Says It Is Almost Time For Bull Season
Although it is a warning sign that could point to a major bottom in crypto in the future, since momentum-based RSI, there is a possibility of downside until the momentum ends. This area could also be tested repeatedly by price. It is similar to Bitcoin’s history, which has seen overbought prices display frequently.
Buyers at these prices would want to look for an RSI swing rejection setup according Wilder’s methodology. The setup is similar to previous bear markets. It involves waiting for RSI levels to rise above the threshold. The strategy then involves waiting for the RSI’s return above the threshold. This will ensure that the threshold is maintained during each correction. A buy signal will be generated when the RSI reaches a higher level.
Taking a position now does not mean it is safe | Source: BTCUSD on TradingView.com
Even then, bulls aren’t completely safe in their positions. The past bear market experience is a good indicator of the future. There’s a 50% chance that there will be a double bottom with a bullish RSI divergence.
After a period of 200 days, 2015 saw a second bottom in the bear market. This resulted in a lower low. The RSI reached a lower low which indicated that selling momentum was very weak in relation to price movement. This led to the longest bull run ever recorded.
Did this sign represent the bottom?
Follow @TonySpilotroBTC on Twitter or join The TonyTradesBTC TelegramFor exclusive market information and technical analysis education, subscribe to our newsletter. Please note: Content is educational and should not be considered investment advice.
Featured image taken from iStockPhoto. Charts taken from TradingView.com
