A bullish divergence in Bitcoin’s price and RSI level … a technical indicator flashes green … what history says about Bitcoin returns going forward …
There’s something bullish brewing in crypto.Even though the price surge that pushed Bitcoin up more than 40% so far this year appears to be stalling, there’s lots happening under the hood.Investors would be wise to take note. If history is repeating, significant gains are in store.To understand what’s going on, let’s begin by evaluating Bitcoin’s Relative Strength Index (RSI) level.This is a momentum indicator that measures the extent to which an asset is overbought or oversold. A reading over 70 suggests an asset is “overbought” (and likely poised to pull back) while a reading below 30 means it’s “oversold” (and poised for positive gains).With that context, let’s turn to our resident crypto expert Luke Lango of Crypto Investor Network. From his latest update:
Bitcoin became wildly overbought in its early 2023 surge.In late January, the Relative Strength Index on BTC hit 91.2. That is nearly as high as BTC’s RSI has ever been, meaning that in late January, BTC was pretty much as overbought as it has ever been.Every single time BTC’s RSI got this high, the crypto market underwent a short-term pullback. However, every single time BTC’s RSI has popped above 90 in the past, cryptos were in a boom cycle. Indeed, Bitcoin has never reported a 90-plus RSI and not been in a boom cycle.Moreover, that first 90-plus RSI reading tends to mark the very beginning of a boom cycle, with huge returns to follow.We just registered the first 90-plus RSI reading in this cycle. History says that after a brief pullback, this is consistent with the start of a massive crypto market rally in 2023.
Let’s add an additional wrinkle.
We’re seeing a bullish inconsistency between Bitcoin’s price and its RSI level
When RSI levels become too over-stretched in either direction, a mean-reversion usually follows.So, we tend to see an asset’s price shoot higher if its RSI has been deep in oversold territory, or an asset price fall sharply after it’s been heavily overbought.As Luke just pointed out, Bitcoin has been grossly overbought. And if we look at its RSI in recent days, it’s been falling hard.But Bitcoin’s price has been holding up far better.Take a look at this divergence.
Bitcoin’s RSI has fallen from 91 to 57 as I write. That’s a major bleed-off – a drop of nearly 38%.Plus, “50” is a neutral reading. Bitcoin’s RSI isn’t far away.Meanwhile, Bitcoin’s price has only fallen from a recent top of $24,199 to $22,699 as I write. That’s a 6% drop.To be clear, an asset’s RSI level and its price do not move in lockstep or in the same proportion. We shouldn’t expect that.But the decline in Bitcoin’s RSI has far outpaced the associated decline in its price.So, what does that mean exactly?A few things…Bitcoin is holding its new, general price level as technical strength builds under the surface… conditions are developing in which there’s plenty of “overhead space” in Bitcoin’s RSI chart for a new bullish surge before it reaches overbought-conditions again… and investors aren’t taking profits because of the expectation of even bigger gains to come.
We just saw a technical event that suggests these bullish expectations are likely to come to pass
Traders have all sorts of tools and indicators they reference to give them insights into the market.Of all their options, “moving averages” rank high on the list.A moving average (MA) is what it sounds like – it’s the “average” of some number of prior days’ worth of asset prices.For medium- and longer-term traders and investors, the slope of the 50-day, 100-day, and 200-day MAs are regularly referenced. They provide clues about an asset’s shorter- and longer-term trend and momentum.Now, traders also analyze the interplay between these MAs themselves because that information also provides clues. For example, there’s a bullish signal called a “Golden Cross.”
This term describes the dynamic wherein the shorter-term 50-day MA pushes north through the long-term 200-day MA.Many traders view this as evidence of a long-term regime change in the market, from bearish to bullish.And that’s what just happened with Bitcoin…
This alone doesn’t mean a bull market is guaranteed. Pressure on Bitcoin’s price could lead to the 50-day MA falling back below the 200-day MA.But if this Golden Cross holds, which becomes more likely the longer that Bitcoin’s price remains steady while its RSI level bleeds off, the better the odds are that we’re seeing a real bull forming.
If Bitcoin is entering a new bull market, what should we expect from 2023?
Let’s return to Luke:
Bitcoin almost always retakes between 38% and 50% of its losses in the first year of a boom cycle, which almost always correlates with the 12 months before a BTC halving event.It seems history is destined to repeat. BTC’s early 2023 uptrend is consistent with the token rising to $40,000 by the end of this year.That would be a near 50% retracement of BTC’s losses in the first year of its boom cycle and in the 12-month window before the Fourth Halving.
If Bitcoin does reach $40,000 by the end of the year, that would mean a gain of more than 75% from today’s price.
If the Fed pauses its rate hikes, history suggests crypto gains are in store
Luke writes that we’re seeing a new Jerome Powell. He’s noticeably more dovish than he has been in the past.This shift began in his press conference after the FOMC meeting last week.As Luke points out, Powell said that the disinflation cycle has begun. That’s a sentimental and rhetorical pivot, which sets the stage for a policy pivot in the next three months.Now, the stock market erupted in the wake of Powell’s comments since the dovishness caught some traders off-guard.Clearly, Powell saw this reaction, so he had the opportunity to talk down this bullish response to his press conference on Tuesday. That’s when Powell spoke at the Economic Club of Washington.That didn’t happen. Instead, Powell largely repeated the same message about disinflation beginning.Yes, he included plenty of hedging language, but Powell didn’t revert to “full hawk” as we’ve seen him before. That in itself was dovish.So, if/when we do finally see the long-awaited Fed “pause” this spring, what are the implications for Bitcoin?Luke writes that the last time the Fed paused a rate-hike campaign, Bitcoin soared.Here’s the associated chart he provided his readers.If you’re having trouble seeing it, Luke points toward December 2018, which is when the Fed stopped raising rates during that hiking cycle.That coincided with the beginning of the 2019 Bitcoin bull market – and on an even longer-term horizon, the bull that topped out in 2021.
Put everything together, and it strengthens Luke’s conviction that the crypto bear is over
Yes, prices are taking a breather and could retreat and consolidate over the short-term. That’s a normal and even healthy part of a bull market.But an increasing number of bullish signs are flashing today. It’s time to start paying attention.Back to Luke:
While [last] week wasn’t another explosive upside week for cryptos, we do believe it provided further technical and fundamental confirmation that a new crypto boom cycle has, indeed, begun.We were waiting for this confirmation to issue new Buy Alerts. That confirmation has now come.Therefore, we are now just putting the finishing touches on a new round of crypto Buy Alerts and fully expect to issue new buys in the month of February.
To join Luke in Crypto Investor Network to access these new buys, click here. Otherwise, be aware of this brewing bullishness. There’s a shift happening.We’ll keep you updated.Have a good evening,
Jeff Remsburg
