Yesterday, Bitcoin’s daily time frame chart recorded the lowest value of the Relative Strength Index (RSI) indicator since November 2022, a period related to the collapse of cryptocurrency exchange FTX.
Usually when the RSI marks oversold values like this, the odds of an asset rally go up, at least for a momentary recovery.
Is Bitcoin definitely ready for the next bull run?
Let’s take a look in this article.
Oversold RSI on Bitcoin: a record high since the collapse of the FTX crypto exchange
Yesterday Bitcoin broke its latent sideways situation that lasted for several weeks by falling -7% and bringing the “Relative Strength Index” (RSI) indicator to mark a value of 24.22 that has not been observed since the FTX collapse of November 2022.
This is a condition referred to in the jargon as “oversold,” and indicates a period in the market when an asset is in a weak phase.
The RSI indicator, whose value fluctuates between the range 0-100, was invented by American engineer J.Welles Wilder in the 1970s and quickly became one of the most beloved tools for stock traders to predict the future movement of financial stocks.
It turns out to be very useful on Bitcoin to understand whether bulls or bears have run out of steam or not.
Theoretically, when the RSI exceeds the value of 70, it means that the rises may soon end, while when it breaks the 30 threshold it means in the opposite way that the declines no longer have adequate strength to continue.
Of course, there are exceptions and there are occasions when we see situations where the indicator remains in an oversold or overbought condition for weeks.
However, as a rule, when we find ourselves in situations such as the current one in which Bitcoin marks a very low RSI value, we can guess that prices are likely to rise again.
During the collapse of the FTX exchange in November 2022, this analysis tool touched 24.70 with the crypto’s value reaching its local low at $15,670.
From then on until mid-April 2023, Bitcoin prices increased as expected by about 95% reaching $30,000.
Very interestingly, it was also noted that in the two months after reaching the oversold value in the RSI, the cryptocurrency rose by 50% touching $23,800 at the end of January 2023.
Many traders therefore expect the same percentages to be repeated in the coming months, sending Bitcoin directly back near its all-time high at $69,000.
Bull run approaching?
Although the RSI indicator has worked very well to predict Bitcoin’s price movements on many occasions in the past, such as in the case of the FTX collapse, we cannot sing victory right away.
As mentioned above, this indicator can remain in an oversold or overbought condition for several days or even weeks, creating extreme confusion in the minds of cryptocurrency traders.
For instance, it happened that from 10 to 31 January 2023, the RSI remained in an overbought value range without the bears getting the upper hand by pushing the price down.
On the contrary, they continued to rise at that juncture until 21 February, when a further local high was reached, before reversing to 20,000.
It becomes clear that when there are imbalances of this kind, prices sooner or later must correct their trajectory, but the timing and manner in which this happens remains unknown.
For a trader to have heavy exposure with leverage positions during these rare events can bring stellar profits but at the same time can also cause severe losses if the collateral put up is not enough to cover the error in predicting the movements on the chart.
To the question whether we are in the anticipatory phase of Bitcoin’s next bull run we can only answer: UNCERTAIN.
We can confirm that we are close to a situation in which the value of Bitcoin will return to shine as it did in 2021 but we cannot know whether we still have a few more weeks/months of declines ahead of us.
Moreover, market volumes are so low that heavy movements like yesterday’s could be the result of some whale‘s manipulation.
During the FTX collapse, in which Bitcoin’s RSI on the daily chart touched similar values as today, trading volumes on Binance were about 7.5 times larger.
Before we can shout “to the moon” it will be necessary to wait for the return of financial big names and big money within the cryptocurrency market.
From that point on, it will be possible to interpret the price action of digital gold more clearly.