The price of bitcoin had previously shown extreme strength until the debut of the first spot ETFs. That strength has since waned, leading to a 20% correction in BTCUSD.
However, a popular technical indicator that measures momentum could indicate a powerful upward continuation, but only if a certain level is broken. Continue reading to learn more about the Relative Strength Index and how the top cryptocurrency performs once the market reaches an “overbought” level.
bitcoin is approaching 'overbought' and why this is 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 often means that the trend is about to change.
In bitcoin and other cryptocurrencies, the weekly RSI is usually a sign that the asset is entering its most powerful phase. For example, bitcoin surpassed a reading of 70 in October 2023, and just a few weeks later experienced a rally of over 60% to 2024 local highs.
Now the BTCUSD 1H charts show an RSI reading just below 70, pointing to a possible close above the overbought level. If the bulls can keep the top cryptocurrency by market cap above $43,650, the weekly RSI should close above the threshold.
<img decoding="async" class="size-large wp-image-572553 aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/01/Why-Bitcoin39s-39Overbought39-Could-Trigger-a-107-Rally.jpg" alt="bitcoin rsi” width=”860″ height=”504″ srcset=”https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.51.57.jpg?w=1280 1280w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.51.57.jpg?w=460 460w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.51.57.jpg?w=768 768w, https://technicalterrence.com/wp-content/uploads/2024/01/Why-Bitcoin39s-39Overbought39-Could-Trigger-a-107-Rally.jpg 860w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.51.57.jpg?w=750 750w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.51.57.jpg?w=1140 1140w” sizes=”(max-width: 860px) 100vw, 860px” loading=”lazy” data-recalc-dims=”1″/>
The average move is 107% | BTCUSD on TradingView.com
BTCUSD 1W Relative Strength Historical Data
The historical data could possibly shed some light on what could happen if the weekly report Relative Strength Index closes above 70 as expected.
Over the past ten years, bitcoin saw a 1W RSI close above 70 a total of 13 times. This happened eight times in 2016 and 2017, twice in 2019, and once in 2020 and 2021. An additional case occurred in 2023.
Of the 13 times, the average gain after the RSI closed above 70 until the peak of the move was 107%. The biggest rally occurred in 2020, with returns of over 400%. The smallest rebound occurred in 2016 and recorded only a 20% increase.
After removing the largest and smallest outliers, the average drops to around 61%. This could mean that bitcoin could produce a move between 61 and 107% on average.
A 61% gain takes BTCUSD back to just under $68,000 and below a new all-time high, while a 107% move sets a new record closer to $90,000 per coin. The cryptocurrency is also potentially working on a bullish flag pattern, with a target around $77,000.
<img loading="lazy" decoding="async" class="size-large wp-image-572555 aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/01/1706717416_441_Why-Bitcoin39s-39Overbought39-Could-Trigger-a-107-Rally.jpg" alt="bitcoin rsi bull flag” width=”860″ height=”505″ srcset=”https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.52.04-1.jpg?w=1280 1280w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.52.04-1.jpg?w=460 460w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.52.04-1.jpg?w=768 768w, https://technicalterrence.com/wp-content/uploads/2024/01/1706717416_441_Why-Bitcoin39s-39Overbought39-Could-Trigger-a-107-Rally.jpg 860w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.52.04-1.jpg?w=750 750w, https://www.newsbtc.com/wp-content/uploads/2024/01/2024-01-31-08.52.04-1.jpg?w=1140 1140w” sizes=”(max-width: 860px) 100vw, 860px” data-recalc-dims=”1″/>
The 75% target is within historical averages | BTCUSD on TradingView.com
Disclaimer: The article is provided for educational purposes only. It does not represent NewsBTC's views on whether to buy, sell or hold investments, and investing naturally carries risks. It is recommended that you conduct your own research before making any investment decisions. Use the information provided on this website at your own risk.
