The overbought reading on the RSI signals a potential for a temporary price correction, according to The Market Ear. Bitcoin, the leading cryptocurrency, has experienced a remarkable 40% gain in the last four weeks and is currently trading just 12% below its record high of nearly $69,000.
In such a highly bullish market, short-term traders and speculators often jump in to capitalize on the momentum, utilizing riskier leveraged products like futures. However, The Market Ear suggests that chasing the rally at this point may be a risky move for those who missed the early surge.
“Bitcoin [14-day] RSI at 88. We have not seen RSI this overbought AND bitcoin trading at these absolute levels, ever,” stated analysts at The Market Ear in a recent newsletter. They added, “Chasing it here looks like a very late trade.”
The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum indicator that measures the speed and change of price movements over a set period, typically 14 days or 14 weeks. An RSI reading above 70 indicates overbought conditions, suggesting a potential correction.
The present RSI reading, combined with the plus $60,000 bitcoin price, is unprecedented. The last time bitcoin traded above $60,000 in early 2021 and November 2021, the RSI peaked between 65 and 75. The current RSI value raises caution for speculators seeking a long entry at the current market rate.
While the overbought reading on the RSI is a concern for short-term traders, it holds little importance for existing or new long-term investors following a buy-and-hold strategy. Long-term investors typically remain unfazed by short-term price swings and focus on the broader picture.
Analysts are optimistic about bitcoin's long-term prospects, attributing the bullish outlook to factors such as the halving, which reduces supply expansion by 50% every four years, and Wall Street's growing acceptance of spot bitcoin ETFs. The consensus among analysts suggests that bitcoin could reach a price of $120,000 and higher by September 2025.