Bitcoin Buy Signal Surfaces Again
This is individual research and does not constitute investment advice.
Could bitcoin – and other cryptos – finally be at a bottom? Is it time to buy?
I believe so.
After a yearlong bear market, cryptocurrencies have lost much of their initial glamour.
We see it all the time. When an asset class is red-hot with extraordinary gains driven by euphoric excitement, everyone’s all-in.
But when things start to turn sour, investors quickly become pessimistic.
While many have attempted to call the bottom over the past year, many of those failed attempts were made from a short-term view of the market.
A slight pullback here… some good news there…
Those things are part of the white noise that creates the day-to-day fluctuations in the crypto market.
But I’m much more interested in the long-term trend of cryptos – specifically bitcoin.
To date, there are more than 2,000 unique cryptocurrencies on the market. Yet bitcoin still accounts for about 52% of the crypto market’s total value.
In effect, bitcoin is the ultimate puppet master.
Unlike stocks, cryptocurrencies are not supported by fundamentals that can be analyzed on their own merit. Instead, we’re looking at a market dominated purely by psychology. Market prices are determined by fear and greed.
For that reason, I believe technical analysis is much better suited to understanding when to buy in or sell out of this market.
So let’s consider a technical view of bitcoin…
A key indicator suggests that right now might be the best moment to get back in.
That indicator is the relative strength index (RSI).
This is a straightforward momentum gauge that’s effective when applied correctly.
The indicator oscillates between 0 and 100. When RSI is above 70, the asset is considered overbought and could signal a time to sell. When RSI is below 30, the asset is considered oversold and possibly a buy.
By default, most traders use a 14-day RSI to see if an asset is overbought or oversold.
But for a long-term view of an asset’s trend, I prefer using a weekly time frame.
Below, I’ve applied a 14-week RSI to the price chart of bitcoin…
Recently, bitcoin hit “oversold” status. Its RSI dropped below 30, which indicates a potential buy signal for the crypto.
But there’s more to it than that…
The last time bitcoin’s 14-week RSI dropped below 30 was back in early 2015 after a similar – yet lesser-known – bear market wiped out 86% of its market cap.
That sub-30 RSI indicated a bottom for the market, as well as a very effective buy signal for traders looking to get back in.
In fact, had you invested in bitcoin using RSI as a buy signal, you would have watched bitcoin’s price soar a hundredfold, from about $200 in 2015 to nearly $20,000 in late 2017.
Today we’re in an eerily similar situation…
At the time its RSI dropped below 30 a few weeks ago, bitcoin had lost about 84% of its value from its all-time high.
I believe this indicates once again that we’re seeing a bottom in the crypto market.
As such, crypto investors should use this moment to seriously reconsider buying back into large cap cryptos – especially bitcoin.