Bitcoin Weekly RSI Sets Record for Most Oversold in History
Bitcoin price is in free fall and the cryptocurrency community is in a panic. The high-risk speculative asset class is living up to its infamous volatility and the selling seems unstoppable.
At some point, all assets become oversold and the recovery begins. After the most recent sell-off, the weekly BTCUSD RSI has hit the most oversold level in the entire history of price action, including two bear market bottoms.
Bitcoin Selloff Sets Record for Most Oversold Weekly RSI Ever
Bitcoin price today ticked below $22,000 per coin and is rapidly approaching prices closer to the 2017 peak. Many altcoins, including Ethereum, have already pushed below the peak of the past bull market in an unprecedented move for the crypto market.
Panic is justified. The frantic effort to cash out coins as quickly as possible while there is still value left has caused many top exchanges to shut down withdrawals and better assess the situation. Selling pressure has also pushed the weekly Relative Strength Index to the most historically oversold level since Bitcoin began trading.
Related literature | Bitcoin plunges to 18-month lows, has the market seen the worst?
The Relative Strength Index is a widely used momentum oscillator first developed by J. Welles Wilder Jr. In the 70’s† Wilder is also the creator of the Average True Range, Average Directional Index, and the Parabolic SAR. It is used to measure when assets become overbought or oversold.
With BTCUSD historically oversold on weekly timeframes using the RSI, what exactly could this mean and what could happen?
BTCUSD Weekly RSI Is Most Oversold Ever | Source: BTCUSD on TradingView.com
Comparison of the current crypto collapse with past bear market bottoms
A visual inspection of the weekly BTCUSD chart places the RSI immediately below the lower threshold of 30 at about the same level as two previous bear market bottoms. Readings below the lower threshold of 30 are considered oversold. By contrast, readings over 70 are considered overbought.
More accurate readings of the 2015 and 2018 bear market bottoms are 28.41 and 28.72, respectively. The current value on BTCUSD is below 28, marking the all-time low on weekly time frames.
Related literature | Bitcoin Bear Market Comparison Says It’s Almost Time For Bull Season
While this is a sign that in hindsight could indicate a significant bottom in crypto, as the RSI is momentum-based, the downside could continue until momentum runs its course. Price may also repeatedly test the area, similar to how Bitcoin regularly displays readings of overbought price action throughout history.
Buyers at these prices would want to look for an RSI swing rejection configuration according to Wilder’s methodology† Similar to previous bear markets, the setup involves waiting for the RSI to reach oversold levels. The rest of the strategy involves waiting for the RSI to rise above the threshold again and stay above the threshold on the next correction. After the RSI makes a higher high, a buy signal is generated.
Taking a position now doesn’t mean it’s safe | Source: BTCUSD on TradingView.com
Even then, bulls are not completely safe in their positions. If past bear markets are any indication of what to expect, there is a 50/50 chance of a double-bottom formation with a bullish RSI divergence.
A second bear market bottom occurred in 2015, reaching a slightly lower low after 200 days. The RSI made a higher low, indicating that selling momentum was extremely weak relative to price movement, following the most explosive bull run in history.
Was this the bottom sign bulls were waiting for?
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Featured image from iStockPhoto, charts from TradingView.com