The 14-week RSI has now dropped to 53.00, a level that has consistently acted as solid support and marked an end of corrective pullbacks during the 2016-2017 bull run.
The RSI support has come into play as bitcoin charted a 35% drop from $64,801 to $42,000 in the past four weeks. While Twitter comments from Tesla CEO Elon Musk look to have scared some retail investors into selling, there were already signs of exhaustion in the market. Whales had started moving money out of bitcoin, leaving less-wealthy investors struggling to do the heavy lifting above $60,000.
However, the bull market looks intact, with the cryptocurrency still up 365% year on year and evidence of long-term investors buying the dip. Coupled with the weekly RSI hovering at historically strong support, that suggests the cryptocurrency may soon resume its uptrend.
Bitcoin is showing signs of life at press time, trading 4% higher on the day at $45,300, according to CoinDesk 20 data.
As shown above, bitcoin saw at least four significant corrections during the 2016-2017 bull run that ended with the weekly RSI near 53.00.
The make-or-break level was finally breached in January 2018, marking bitcoin’s entry into a bear market. What followed was almost a year-long sell-off to as low as $3,200.
Since then, crossovers above and below 53.00 have served as reliable indicators of bullish/bearish trend changes. The RSI moved above 53.00 in April 2019 and April 2020, kicking off major price rallies. Meanwhile, drops below the level in September 2019 and February 2020 brought significant losses.
While the weekly RSI is currently hovering at strong support, the daily RSI is signaling oversold conditions with a below-30 print.
“From a technical point of view, the price is finding some support from the 200-day exponential moving average, plus other momentum indicators such as the RSI, which shows that the price is somewhat oversold,” said Simon Peters, cryptoasset analyst at multi-asset investment platform eToro.
Also read: As Newbies Panic in Latest Bitcoin Correction, Old Pros Appear to Buy on the Dip
“This means there is a possibility of buyers now stepping in to push prices up and, as we have seen before, investors waiting on the side lines are already using the sell-off we have seen to invest in cryptoassets, taking advantage of the volatility,” Peters added.
However, as discussed Monday, the cryptocurrency may have a tough time charting a V-shaped recovery rally amid renewed fears that the Federal Reserve may scale back liquidity-boosting stimulus to control inflation.
