Bitcoin price over the holidays touched nearly $35,000 per coin, starting off 2021 with an enormous bang. Last week’s candle was the largest in the asset’s history, dollar for dollar, with over $8,000 added from open to the top of its wick.
It also resulted in such a powerful reading on the weekly Relative Strength Index, it now trumps the momentum seen in 2017 that put Bitcoin on the map in the first place. Here’s what this could mean for the incredibly bullish cryptocurrency, but it is not all good news.
BITCOIN BULLS EXHIBIT MORE ‘RELATIVE STRENGTH’ THAN IN HISTORIC 2017 RALLY
And that is precisely what is happening with Bitcoin this year, as the world attempts to figure out how to preserve their wealth in the face of unprecedented fiat money printing and a dying dollar.
A weakening dollar has in part allowed the leading cryptocurrency by market cap to thrive. The perfect storm for Bitcoin not only revived retail interest after three full years, but the institutional demand driving this latest rally has pushed the Relative Strength Index to a higher level than all of 2017.
Weekly RSI levels reached over 93 over the weekend, ahead of the record-setting weekly close and the first weekly candle of 2021. Only two instances remain, dating back as far as 2013 where the cryptocurrency was able to push beyond this point on the technical indicator. That year alone, Bitcoin climbed over 8000% – could that be what’s to come in 2021?
Weekly RSI readings have reached the highest since 2013 | Source: BTCUSD on TradingView.com
WHAT PAST INSTANCES OF INTENSELY OVERBOUGHT BTC TELLS US
When momentum finally did turn, however, both times, Bitcoin corrected by over 75%. A 75% correction from the 2021 high, would take the price per BTC back down to under $10,000.
The spike in RSI also beat out 2017’s peak, which also resulted in a three-year bear phase – yet another unlikely scenario given the asset’s sudden demand and diminishing supply
What is likely, is that a correction is coming after such an enormous show of strength by bulls. The RSI doesn’t just indicate trend strength as the name might imply and how most analysts use the tool, but its primary use it to signal when an asset is “overbought or oversold.”
During the second bull market, the average correction was roughly 37% but corrections were far more common in 2016 and 2017 than in 2013 or the current bull run.
Such a correction might shake out retail investors who bought in recently, while also allowing the price to retreat to an attractive enough level for another burst of institutional FOMO before the final push and peak is here.