As the Bitcoin price started to rise weeks later, an interesting development appeared on the charts. This development is extremely important as it is seen for the first time in BTC history. This is why investing in Bitcoin is appropriate, says analyst at consulting giant Fool. Here are the details…
A first in Bitcoin history
For the first time ever, Bitcoin (BTC) will record its first four-month relative strength index (RSI) value below 42. It will also be the first monthly close of BTC’s RSI below 39. Expecting a big jump in price, Bitcoin’s November RSI will likely be around 38, a level it has never reached before. These developments in the RSI are the first of their kind and have the potential to directly affect the price.
For those who don’t know, the RSI allows to know whether an asset is overvalued or undervalued. It is also used to measure the speed and magnitude of recent price changes. The indicator shows that an asset is undervalued when the RSI value drops. At this point, analysts understand that the risk of further price declines is minimal. So this theoretically makes for a great time to buy BTC.
What does the BTC Relative Strength Index say?
You should know that this does not mean that prices should immediately return to higher levels. For example, RSI values may remain in the region of low valuation for months. The advantage of watching a cryptocurrency’s RSI is that it allows traders to make more informed decisions based on current conditions in a broader, historical context. RSI values range from 0 to 100. In the indicator, values above 70 indicate that an asset is overbought and therefore overvalued. However, values below 30 indicate undervaluation.
The RSI is a metric that has historically been used for stocks. However, it can serve a similar purpose in cryptocurrencies such as BTC. Like stocks, we can see how BTC behaved when it reached similar levels in the past. Bitcoin has gone through a handful of bear markets throughout its history. During these periods, Bitcoin’s RSI has dropped to the sub-40s for months. In the 2015 bear market, the RSI remained in the 40s for nine months. In its last bear market in 2018 and 2019, it traded below 45 for five months. We are now in a similar situation, but there are some key differences.
Will things be different for Bitcoin this time around?
Bitcoin RSI has been below 43 for the past six months, a new record. Historically, the coin has been in low value territory for almost the same period of time in bear markets. But it has never been this low. For BTC expecting any new price momentum, the November RSI will be a new record low of around 38. Past periods when the RSI reached the 40s or even 30s reveal a pattern. Accordingly, after the bottom, it takes roughly 1.5 years for the RSI to return to the 70s. This is enough for a new 10-month Taurus season to begin, as we have reported at Kriptokoin.com.
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