In the past few weeks, Bitcoin has been a force to reckon with given its upward price trend. However, the largest cryptocurrency is under pressure and is, therefore, correcting downwards. There are also chances that Bitcoin might crash back into the bear market again and a number of reasons can be attributed to it.
Major Market Correction on May 17, 2019
How is Bitcoin correcting downwards? You may ask, but here’s an instance: The virtual asset which was trading around $8,300 on May 16, 2019, dumped to $7,346 on May 17, 2019, which is over an 8 percent drop within 24 hours. It may also be interesting to know that the $8,300 price range is the first of its kind since August 2018.
Nonetheless, the decline was linked to a large sell order on Bitstamp where a “Jackass” whale liquidated 5,000 Bitcoins into the market. The result was a higher supply of Bitcoin in comparison to its demand. Asides from this huge sale, a number of hodlers are trying to cash in on the profit from the recent price increment which may impact on its price in the long run.
Bitcoin’s Overbought Level Could Trigger Major Crash
Bitcoin’s weekly relative strength index (RSI) is close to 70 which denotes an overbought zone. Overbought, in this case, means that Bitcoin’s price is higher than its intrinsic value. As a result of the short term movement in price, a reversal could be triggered in the near future.
Josh Rager, a cryptocurrency analyst recently pointed out that Bitcoin’s weekly RSI has never been above 70 since January 1, 2018, but it is currently approaching quickly. He, however, pointed out that Bitcoin needs a pullback which could neutralize its market sentiment.
Like Rager, eToro’s analyst, Mati Greenspan believes that a pullback may not be such a bad thing. According to the analyst on May 17, 2019, “IF the pullback does reverse now and we continue past the recent highs, there is virtually no major levels of resistance until $20,000.”
Historical Performance of the Market Based on RSI
Richard Heart, a Bitcoin billionaire while in an interview with CNBC Crypto Trader host, Ran Neuner, on April 10, 2019, stated that “history tends to repeat itself.” Similarly, the best chart that can give an insight into what Bitcoin will do in the near future, is what it has already done. Now, if we base our judgment on the statement above to study the historical RSI movement and the market’s behavior, then we can ascertain where the virtual asset is headed. Let’s take a closer look.
The first case scenario is one where Bitcoin hit its all-time high of $20,000 in December 2018 and its RSI skyrocketed above 70. A week later, there was a 43 percent dump in its price. As another example, there was a 39 percent dump in Bitcoin’s price two weeks after the weekly RSI went above 70. Similarly, a week after the RSI pushed towards 115, Bitcoin experienced a downside correction.
Now, cryptocurrency traders have come to expect the same performance and as such, each time Bitcoin closes on an RSI of 70 and above, there is always the tendency for them to sell off in fears that another bear market may be underway. While you may not really get the impact of the virtual asset declining by over 30 percent, it is a significant amount.
Nevertheless, these are only the sentiments of the market because the cryptocurrency sphere is an unpredictable one. It may tend to operate like it did in the past, or take us by surprise. That is why, in the end, an investor has to make informed decisions before finally taking a deep into the market and deciding if they’ll be holding for a long or short term.