The recent resurgence in Bitcoin’s (BTC -3.44%) price has proved to be a spark of life for the entire cryptocurrency asset class. At the time of this writing, the world’s first and most valuable cryptocurrency is up more than 20% in the last week, which catapulted its market cap to be worth more than industry giants like Walmart, Alibaba Group Holding, and Meta Platforms.
While Bitcoin’s reclamation of the $20,000 mark seems to have drawn renewed interest from investors, the recent swing in prices might only be the beginning. Conviction in this comes from three metrics that historically have proved to be reliable in marking Bitcoin’s next leg up.
Understanding the indicator: Relative strength index
The relative strength index (RSI) is a value used to measure the speed and magnitude of an asset’s recent price changes to evaluate whether it is overvalued or undervalued. RSI values range from 0 to 100. Traditional usage of RSI states that values above 70 indicate that an asset is overbought. Values under 30 usually mean assets are oversold and, therefore, undervalued.
Investors can look at Bitcoin’s RSI on various time scales but the one of most interest is the weekly one. After months of trading for below 40 and at one point bottoming out at 26 in June 2022, Bitcoin’s most recent move sent its RSI to around 50 — a crucial threshold. Based on historical RSI data, when Bitcoin reaches an RSI of 50, it can serve as fuel for sustained momentum.
Periods where RSI was below 50 and then climbed back above typically resulted in moves where Bitcoin’s price rocketed, but there have been instances when it subsequently fell back below the level after about a month. If Bitcoin can hold this line for more than a month, the stable uptrend should serve as a reason for cautious optimism that the worst of this bear market might be over.