Prior to the launch of the first spot ETFs, Bitcoin prices had been showing extreme strength. That strength has since faded, causing BTCUSD to retrace 20%.
However, popular technical indicators that measure momentum could point to a continuation of the strong upward trend, but only if a certain level is breached. Read on to learn more about the Relative Strength Index and how the top cryptocurrencies perform after the market reaches “overbought” levels.
Bitcoin is approaching ‘overbought’ and why that’s not a bad thing
The Relative Strength Index is a momentum measuring tool that signals when a market is “overbought” or “oversold.” When a financial asset reaches such conditions, it usually means that the trend is about to change.
In Bitcoin and other cryptocurrencies, the weekly RSI is often a sign that the asset is entering its strongest phase. For example, Bitcoin topped 70 in October 2023 and rose more than 60% just weeks later to reach local highs in 2024.
The 1W BTCUSD chart now shows an RSI reading just below 70, indicating a possible close back above overbought levels. If the bulls can keep the largest cryptocurrency by market capitalization above $43,650, the weekly RSI should settle above that threshold.
The average move is 107% | BTCUSD on TradingView.com
BTCUSD historical 1W relative strength data
Historical data may reveal what would happen if the weekly RSI closed above 70 as expected.
In the past decade, Bitcoin has had a total of 13 times where the 1W RSI closed above 70. This happened eight times in 2016 and 2017, twice in 2019, and once each in 2020 and 2021. It happened again in 2023.
Of those 13 times, the RSI closed above 70 and the average gain after the movement peak was 107%. The biggest gains occurred in 2020, resulting in returns of over 400%. The smallest increase occurred in 2016, with a rise of only 20%.
After removing the largest and smallest outliers, the average dropped to around 61%. This could mean that Bitcoin’s average gain could range from 61% to 107%.
The 61% gain brought BTCUSD back to just under $68,000, just shy of an all-time high, while the 107% gain set a new record close to $90,000 per coin. The cryptocurrency may also form a bull flag pattern with a price target of around $77,000.
The 75% target is within historical averages | BTCUSD on TradingView.com
Disclaimer: This article is for educational purposes only. It does not represent NewsBTC’s opinion on whether to buy, sell or hold any investment, and investment naturally involves risks. It is recommended that you conduct your own research before making any investment decision. Use of the information provided on this website is entirely at your own risk.
