The price of bitcoin is in free fall and the cryptocurrency community is in panic. The high-risk, speculative asset class is living out its notorious volatility and selling appears to be unstoppable.
At some point, all assets are oversold and recovery begins. Following the most recent sell-off, the BTCUSD weekly RSI has reached the highest oversold level in the entire history of price action, including two bear market bottoms.
Bitcoin selloff sets record for highest weekly RSI ever
The price of bitcoin has dropped below $22,000 per coin today and is rapidly approaching the price close to its 2017 peak. Several altcoins, including Ethereum, have already been pushed down from previous bull market peaks in an unprecedented move for the crypto market.
Panic is going well. The frantic attempt to redeem the coins as quickly as possible, while still retaining value, has prompted many top exchanges to halt withdrawals and assess the situation better. Selling pressure has also pushed the weekly relative strength index to its all-time oversold levels as bitcoin resumes trading.
Related Reading | Bitcoin hits 18-month low, has the market seen its worst?
The relative strength index is a commonly used momentum oscillator that was first introduced in the 1970s by J.J. Developed by Welles Wilder Jr. Wilder is also the creator of Average True Range, Average Directional Index and Parabolic SAR. It is used to detect when an asset is overbought or oversold.
With BTCUSD historically oversold on the weekly time frame using the RSI, what could this really mean, and what could happen next?
BTCUSD weekly RSI is the most oversold ever | Source: BTCUSD on TradingView.com
Comparing the Current Crypto Collapse with the Bottom of the Past Bear Market
A visual inspection of the BTCUSD weekly chart immediately placed the RSI below the 30 low range at the same level as the bottom two previous bear markets. A reading below the lower limit of 30 is considered oversold. Conversely, readings above 70 are considered overbought.
More accurate readings of the bottoms of the 2015 and 2018 bear markets are 28.41 and 28.72, respectively. The current reading on BTCUSD is below 28, the lowest point ever on the weekly time frame.
Related Reading | Bitcoin Bear Market Comparison Says It’s Almost Time for Bull Season
While this is a sign that it may finally point to a significant bottom in the crypto, as the RSI is momentum-based, the downside could continue as long as the momentum runs its course. Price may also repeatedly test that area as Bitcoin regularly displays readings of overbought price action throughout its history.
At these prices buyers would like to look for the RSI swing rejection setup as per Wilder’s methodology. As in previous bear markets, the setup involves waiting for the RSI to reach oversold levels. The rest of the strategy involves watching for the RSI to return above the threshold and keep it above the threshold during the next correction. After the RSI hits a higher high, a buy signal is generated.
Taking a position now does not mean it is safe | Source: BTCUSD on TradingView.com
Nevertheless, the bulls are not completely safe in their position. 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.
In 2015, a second bear market bottom occurred, turning slightly lower after a full 200 days. The RSI made a higher low, indicating that selling momentum was extremely weak against price action, and followed the most explosive bull run in history.
Was this the down signal the bulls were waiting for?
obey @TonySpilotroBTC on Twitter or join TonyTradesBTC Telegram For exclusive daily market insights and technical analysis education, Please note: The content is educational and should not be considered investment advice.
Featured image from iStockPhoto, Charts from TradingView.com