Bulls have something to celebrate after a classic on-chain metric prints its first major divergence in months.
Bitcoin (BTC) may have stopped short of $40,000, but this week’s gains have helped spark a more significant breakout for underlying price strength.
BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView
RSI breaks a two-month tradition
Data from Cointelegraph Markets Pro and TradingView shows that sustained BTC price action above $37,000 this week has allowed the relative strength index (RSI) to diverge from a multi-month downtrend.
After going from $36,700 to $39,280 in February, Bitcoin still lacks the momentum needed to challenge $40,000 resistance.
That could soon change, however, as one trader shows that RSI has now exited its dive deep into “oversold” territory.
RSI looks at how “oversold” or “overbought” an asset is at a given price point. As Cointelegraph reported, since late November, it has been sinking, culminating in rare lows seen only a handful of times in recent years.
“It seems that everyone is watching a trend line. But nobody is paying attention to the RSI….it already broke out of that downtrend!” popular trader and analyst Crypto Ed commented on the latest events.
“Before you think I’m calling for new ATH’s: we’re not out of the woods yet, but seeing more up short term.”
An accompanying chart shows BTC/USD fighting to exit its own downtrend, with RSI already notionally free.
Bitcoin RSI vs. BTC/USD annotated chart. Source: Crypto Ed/Twitter
“Groundhog Year” for BTC price
Even a trip back to the $69,000 peak would not constitute a major shift in price performance, however.
Zooming out, data depicts almost the whole of 2021 as a consolidatory year for Bitcoin, with current prices almost exactly matching those from the same period last year.
— Mikołaj Zakrzowski (@PrfDude) February 1, 2022
Unlike much of the previous 12 months, however, the available supply has been dwindling, with the implication that any price trigger could have deeper consequences thanks to there simply being less BTC involved.
This illiquid supply trend is further expected to continue upward “relentlessly” in 2022.