A recent volatile spike in the Ethereum and Bitcoin markets has exceeded their value in “overbought” regions according to the Relative Strength Indicator (RSI).
In retrospect, the RSI is a momentum indicator that measures the extent of an asset’s recent price change to determine its overbought or oversold conditions. When displayed as an oscillator, it can have a value between 0 and 100, with 30-70 serving as the neutral range. Traders see RSI above 70 as overbought – and below 30 as oversold.
They continue to treat an overbought RSI as an indication of a possible trend reversal or price decline.
Bitcoin’s RSI, after jumping from $ 3,858 in March to over $ 41,000 in January, rose to 89.48 on its daily chart. Meanwhile, the same value for Ethereum stands at 89.36, after hovering 1,335 percent over the same period.
Ethereum trades near its yearly high as its RSI signals topping out. Source: ETHUSD on TradingView.com
Typically, the exaggerated rallies on both assets have led some analysts to deeper price corrections, with some predicting a 50 percent decline from their respective session peaks. Still, one analyst believes that traders shouldn’t sell their Bitcoin and Ethereum based on RSI warnings.
Koroush AK, who successfully forecast Bitcoin’s record high in 2020, says RSI is not a good indicator for measuring “parabolic uptrends”. Instead, it works pretty well in determining movements in different markets.
RSI is an oscillator.
-Great for wide-ranging markets
-Less for parabolic uptrends
Don’t sell your $ BTC and $ ETH based on RSI.
– Koroush AK (@KoroushAK) January 8, 2021
The statements came as the Ethereum and Bitcoin RSIs continued to hit higher highs despite staying in an overbought zone on the weekly charts. This reflected greater euphoria among traders in the cryptocurrency market, especially after the booming institutional awakening over Bitcoin’s anti-inflation capabilities.
Institutions that balance RSI fears
Observers believe institutions are buying the local price declines. Ki-Young Ju, CEO of CryptoQuant, further highlighted the trend by showing a greater BTC outflow from Coinbase Pro into newly created wallets.
The analyst found that recipient addresses were custodial in nature, indicating an increase in OTC trades even as Bitcoin surged above $ 30,000.
“Looking at the latest Coinbase outflow, possibly OTC deals, we can estimate their PNL,” he tweeted on Friday. BTC Up 24% since Jan 2nd. If you were an institutional investor, would you be satisfied with 24% PNL for Bitcoin? Bullish. “
Coinbase Pro OTC deals have returned 24 percent gains to institutional investors. Source: CryptoQuant
This partly explains why retailers ignored RSI warnings in the previous daily sessions. However, the question remains to what extent the ongoing rally in both the Ethereum and Bitcoin markets could continue. One analyst believes they will correct based on the same RSI warnings.
“RSI called this step better than any other traditional tool and called for a mega-step,” replied the pseudonymous company, Mr. AK.