Virtual Currency

RSI Indicator Predicted Bitcoin Rally in December

Attempts to call the bottom of a market are common…

But getting the call right is not.

In the mire of last year’s stock market corrections, the last thing on most people’s minds was the fate of bitcoin and other cryptocurrencies.

That was a mistake.

Not only is the cryptocurrency market making a big comeback, but in the fog of December’s historic stock market losses, a strong buy signal for bitcoin appeared.

Luckily, some of us were paying attention.

I informed readers of this rare buy signal in January.

I wrote, “we’re seeing a bottom in the crypto market” and “investors should use this moment to seriously reconsider buying back into large cap cryptos – especially bitcoin.”

We’re now seeing that it was exactly the right call.

A Bold – Yet Simple – Call

Bitcoin’s 14-week relative strength index (RSI) – a technical indicator I follow closely – dropped below 30 in mid-December. And, as I showed previously, that signal had a unique precedent.

It appeared in 2015 after a similar market crash in bitcoin. It was then followed by the historic run-up that took bitcoin from about $200 to $20,000.

I wondered… could this rare buy signal strike gold again?

Several months later, the results are in…

line graph - bitcoin price

Bitcoin’s price has surged 135% from around $3,500 – when its 14-week RSI flashed buy – to a recent high of more than $8,350.

The rally has been so strong that many are declaring that bitcoin’s bear market is over.

But as the saying goes, a rising tide lifts all boats. And other large cap cryptocurrencies have fared even better.

Major Cryptos Ride Bitcoin’s Coattails

As the first cryptocurrency, bitcoin isn’t just the biggest boat on the sea. It creates the tide for the rest of the market.

A buy signal for bitcoin is bullish for the whole cryptocurrency market. That’s why bitcoin’s peers have followed its lead into huge gains.

The world’s second-largest cryptocurrency, ethereum, rose more than 200% from about $90 to a high of $279.

Litecoin – the silver to bitcoin’s gold – spiked more than 330% from about $25 to a high of $107.

Bitcoin spinoff bitcoin cash leaped more than 345% from trading near $100 to more than $450.

And ethereum rival EOS jumped more than 250% from less than $2 to nearly $7.

The only major cryptocurrency that’s been somewhat of a dud is ripple. Yet even it saw a near 56% gain from about $0.31 to around $0.48 despite months of wild volatility.

Clearly, my market timing was spot-on.

The Wild West of Speculative Trading

Cryptocurrency enthusiasts are no doubt rejoicing at this long-awaited resurgence. But a question lingers…

What exactly is propelling this new crypto boom?

For one, it’s not fundamentals.

Unlike other asset classes, cryptocurrencies don’t have cash flows or industrial uses. And, with few exceptions, most have no underlying assets from which to derive their value.

Then again, some consider cryptocurrencies a hedge against either the stock market or a global economic crisis – similar to gold and silver.

But I believe the answer is much more simple…

Cryptocurrencies are not valued based on their economic activity or their commercial use. Instead, they’re traded mostly by speculators for whom price action tends to be all that matters.

This is why technical analysis – focused squarely on price action – makes all the difference, as proved by the performance of cryptocurrencies following our January call.

But – as always – the sword cuts both ways…

Bit coin price vs. rsi

Right now, bitcoin’s 14-week RSI is above 70. That’s typically a sign that the market is getting overheated, and we’re already seeing prices pull back a bit.

While I doubt this signal will send the market crashing again, it does provide investors another chance to “buy the dip” in this new bull market for cryptos.

So once again, for those crypto investors wondering when to buy… consider this pullback another chance.

Good investing,

Anthony