Bitcoin has slumped this week, hitting lows approaching the $6,000 mark. However, there are signs that today’s sell-off may be overextended, as bitcoin’s RSI just hit its lowest level since 2016.
The price of bitcoin slumped to a 70-day low of $6,133 on June 13 according to CoinDesk. Around the same time, bitcoin’s relative strength index (RSI) hit a level (26.4) last seen in August 2016.
RSI is used to identify overbought and oversold conditions of an asset. The index compares the magnitude of recent gains and losses over a specified period of time to measure speed and change of price.
Today’s low RSI suggests that the price of bitcoin is less than its true value. Typically, this is when a bounceback is expected to occur.
— Jordan Tuwiner ⚡ (@JordanTuwiner) June 11, 2018
For an asset to be oversold, its RSI needs to drop under 30. In recent months, the RSI of the BTC/USD pair has rarely dropped below 30 on a daily basis. However, when it has dropped below 30, indicating the market is oversold, the price has rebounded in a major way shortly thereafter.
For example, the last time the RSI of bitcoin was below 30, on February 6, 2018 the price of BTC rallied from $6,000 to $11,788 in just two weeks – a gain of around 96%.
Today, the RSI of the BTC/USD pair is even lower than the RSI was on February 6. Optimists are pointing to this data as an indication that a bull market is upcoming.
Prior to February 2018, the last time bitcoin’s RSI went below 30 was on August 14, 2016. At this point, the RSI of bitcoin was around 26 with a price of $563.
An oversold indicator tends to signal downward exhaustion. Typically, this means a bull trend may be upcoming. However, nothing is guaranteed, and bulls will still want to proceed with caution. Bitcoin’s RSI has reached lower levels in its history, which suggests that the price could drop even further.
Bitcoin’s lowest RSI since 2013, for example, was 16.1. Bitcoin reached this shockingly low RSI on August 18, 2015.
Could Bitcoin’s price continue dropping? Or is a major bull market about to form? Time will tell – but it’s been a depressing week for bitcoin holders.