Bitcoin's Oversold Condition Resembles Post-COVID Crash Levels, Signal Indicates
Bitcoin's relative strength index (RSI) has tumbled well below the 30 threshold, indicating its most pronounced oversold condition since March 2020.
A significant technical analysis indicator is highlighting a state of extreme overselling within the Bitcoin market, driven by the surge in bond yields that's affecting various risk assets, including cryptocurrencies.
The 14-day RSI for Bitcoin has substantially dropped below 30, signaling an oversold state. This reading represents the lowest RSI value observed since the crash triggered by the COVID-19 pandemic in March 2020.
The RSI, ranging between 0 and 100, provides insights into an asset's recent price movements compared to its average price fluctuations over a defined period, often 14 days. A reading below 30 denotes oversold conditions, suggesting that the asset's price has experienced a rapid decline compared to its recent average. Conversely, a reading exceeding 70 indicates overbought conditions.
A common misconception prevalent among the crypto community on platforms such as X (formerly Twitter) and among many novice traders is to misinterpret oversold and overbought RSI readings as advanced indicators of imminent bullish or bearish reversals.
However, this interpretation is not entirely accurate. An oversold RSI reading primarily implies that prices have dropped too rapidly; it doesn't necessarily predict a trend reversal. Similarly, an overbought reading signifies that prices have experienced rapid upward momentum.
In reality, the recent RSI reading below 30, indicative of oversold conditions, reinforces the prevailing bearish momentum. As the adage goes, indicators can remain in an oversold state for a longer duration than dip buyers can sustain financially.
Alex Kuptsikevich, a senior market analyst at FxPro, has observed that Bitcoin's trend has turned bearish.
"Bitcoin concluded the past week with a significant drop below its 200-week and 200-day moving averages, marking a shift towards a bearish trend. With current levels hovering around $26,000, the subsequent area of decline seems to be the pivotal support zone at $24,700," Kuptsikevich communicated in an email.
At the time of writing, Bitcoin was trading at $26,000. During the previous week, its prices experienced a decline exceeding 10%, as the yield on the 10-year U.S. inflation-indexed security approached 2%, reaching its highest point since 2009.