But, the move means that Bitcoin oversold now, not seen in roughly 22 months since March 2020 that might result in some positive price action.
The Bitcoin RSI (Relative Strength Index) is a useful tool of analyzing the digital currency’s price behaviour. It basically tells us whether the cryptocurrency is oversold or overbought and by how much. If it is overbought, it means that the buyers and overnumbering the sellers and thus it can create eventual selling pressure on the digital asset. If it is oversold, it means that the sellers have flooded the market and the asset can face eventual buying pressure to balance things out.
Historically, Bitcoin’s RSI has hovered between slightly oversold and slightly overbought conditions. In a bear market, the trend is generally in the favour of the downward forces and it results in oversold conditions. On the other hand, in a bull market, the trend generally remains in the slightly overbought level, showing increased buying activity. In between, when the digital currency reaches massive overbought or oversold conditions, the index generally bounces back to more acceptable levels.
The March 2020 crash was a big one that resulted in the index dropping from around $8k to as low as $4.5k in a matter of two days. Many spot and futures traders lost a lot of money during this small trading session. But, what happened next was interesting as the digital currency rose strongly and within a year it had risen over 1200% to above $52k.
What is common between then and now is that the RSI is now lowest since that crash so Bitcoin is oversold, and may get to that level in the near future if Bitcoin keeps falling hard. While we are at the end of a bull run and a big 1200% rise may not be possible, a decent price reversal may be in the cards in the coming months due to these conditions.
And there is a but, always. Since we are at the end of a big bull season, it is important that we mention a fact; Bitcoin can remain in oversold conditions for a long time. This means that one cannot expect the digital currency to bounce back immediately and to new highs. It might improve a little from the currency scenario but if the bear season is upon us, it can last a long time.
Image Source: pixabay.com
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