A technical indicator used to identify the momentum behind asset prices is registering its highest value since the beginning of 2018 when applied to bitcoin, a possible positive sign for the cryptocurrency's market.
The relative strength index (RSI) takes into account the speed and change in price movements, i.e. momentum, to reveal when the trend of the underlying asset is shifting from bearish to bullish market conditions and vice versa, as well as when it has become overextended.
Traditionally, an RSI value above 70 is considered to be “overbought” and a pullback in price becomes likely, whereas a value below 30 depicts an “oversold” market that is usually due for a positive correction.
The RSI of 50 tends to act as the dividing line between a market that is bullish and one that is not.
Bitcoin’s RSI on the weekly time frame, which speaks to the momentum of its longer-term trend, is showing newfound strength while printing 65 - its highest value since the week of Jan. 8, 2018, just a few weeks after the cryptocurrency reached its all-time high near $20,000.
BTC/USD Weekly Chart
As is shown in Bitcoin’s weekly price chart above, the RSI has indeed surpassed the traditional bull market barrier of 50, as well as the range of 53-60, which acted as a base during the 2016-2017 bull market as well as resistance to its preceding bear market.
From early 2014 to late 2015, the weekly RSI was unable to scale above 60, capping any momentum the cryptocurrency had gained during that stretch.
In October of 2015, however, the RSI was finally able to break above the level, in turn showing the momentum had gained enough strength to shift the entire market from a bear to bull trend. Bitcoin's price then went on to rally some 8,000 percent all while the weekly RSI remained above 53.
Interestingly, the same development seems to have just occurred with bitcoin's latest push above $6,000, putting its market momentum firmly back in historically bullish territory.
All said, the RSI values on the lower time frames are already overbought so corrections in price can be expected, but the longer term bullish view on bitcoin's market will remain intact so as long as its weekly RSI can defend 53, the base RSI of the previous bull market.
A general rule of thumb is to use indicators like the RSI in conjunction with other indicators to avoid any false signals. In this case, bitcoin's price trading above the 200-day moving average and its MACD having completed a bullish cross indeed solidify the bullish argument presented by the weekly RSI.
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