With Bitcoin’s Price Locked Around $50K, the key Momentum Metric Just Flashed Bearish

While correcting from its overbought level, the relative strength index is reaching lower highs.

Due to a mismatch between the cryptocurrency’s price and momentum trends, the run-up in the Bitcoin (BTC) price toward $50,000 last week is at risk of burnout.

Since late July, it appears that the price of Bitcoin and the relative strength index (RSI) have been moving in different directions. As a result, even a big surge higher in BTC/USD bids has been accompanied by lower momentum peaks, implying that the pair’s bullish momentum is fading.

Bearish divergence

The price activity tends to follow the RSI momentum. However, it increases as the price increases and decreases when the price decreases. However, in other situations, the RSI diverges from price patterns, resulting in a so-called RSI divergence.

RSI divergence is a powerful signal for detecting price reversals, according to technical analysts. A bullish divergence, for example, occurs when the price falls while the RSI rises, prompting traders to buy the asset in expectation of a rebound. A bearish divergence, which consists of increasing prices and dropping RSI, encourages traders to grab profits at the peak while anticipating a pullback.

The daily chart of Bitcoin below reveals that the cryptocurrency is in bearish divergence.

Image Source: CoinTelegraph

The downside signal appears as Bitcoin struggles to break bullish above $50,000. As of Sunday, the benchmark cryptocurrency was trading at $48,387, or 4.19% lower from its three-month high of $50,505, achieved on Aug. 3, following a similar 72.36% upside boom.

On the other hand, Bitcoin’s daily RSI initially rallied in sync with prices but topped out on July 30, which was way ahead of price, hitting $50,505. Since July 30, the Bitcoin price formed a sequence of higher highs while RSI printed lower highs, suggesting a weakening upside momentum.

A similar bearish divergence between January and April 2021 was instrumental in predicting a Bitcoin price drop, as shown in the chart below.

Image Source: CoinTelegraph

Bullish indicators

The bearish divergence signal comes as Bitcoin holds strongly above $30,000, amidst anticipation that it would become a hedge of choice among accredited investors against inflationary pressures.

The perception has led many analysts, including investment researcher Lyn Alden and Fundstrat CEO Tom Lee, to predict a $100,000 valuation for the cryptocurrency in 2021.

On Friday, Bitcoin price shot upward by $1,500 in an hour after Federal Reserve Chairman Jerome Powell presented a pro-inflation, dovish policy outlook at this year’s Jackson Hole symposium.

As a result, the biggest bullish indicator for Bitcoin remains the Fed’s aggressive $120 billion a month asset purchase program, coupled with its near-zero interest rate policy.

The strong fundamental has prompted technical analysts to envision a long-term uptrend in the Bitcoin market. Namely, independent market analyst Teddy Cleps presented a bullish outlook for the cryptocurrency, based on key wave support that acts as an accumulation area for traders.

Image Source: CoinTelegraph

Similarly, Ryan Clark, another market analyst, noted that Bitcoin has been merely consolidating below $50,000 just like when it was trading below $24,000 before the December 2020’s bullish breakout.

On the other hand, TraderXO noted that Bitcoin could still fall towards the $39,000-40,000 area but remained convinced that the cryptocurrency would log an attractive rebound from the lower range.

The analyst marked Bitcoin’s all-time high near $65,000 as its long-term upside target.

Source: CoinTelegraph

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