Bitcoin RSI Approaching Four-Year Tipping Point

Reading Time: 3 minutes
  • Bitcoin’s RSI is approaching levels that have historically seen 70%+ pullbacks
  • Bears say the market top is in, while bulls will argue that a pullback would be a slingshot for six figure Bitcoin
  • We look at the data and analyze both arguments

Bitcoin has been on a sensational run since March last year, racing from $3,850 to $42,000. This rampage has left the RSI at a point where historically a 70%+ correction has followed, marking the end of the bull market. Will it be the same this time round, or is there more gas in the tank? We check out both arguments.

Bitcoin RSI At Historically Dangerous Levels

The Bitcoin RSI is currently sitting at 89.8, which puts it in the danger zone for a pullback. But not just any pullback – a potentially market-ending one. Looking at the two-weekly RSI chart we can see clearly what happened when Bitcoin hits these upper levels:

Bitcoin RSI 1

As we can see, on the three occasions when Bitcoin’s RSI has crossed 85 it has put on another 11% or so before enduring a major correction – 76% in 2013, 87% in 2015, and 84% in 2018. Bitcoin’s current two-weekly RSI value means that it has another 5.5% to go before hitting this historical top value. But when it does, how deep will the pullback be?

Bears Argue That the Top Is In

There is a huge amount of evidence to suggest that the top might be in for Bitcoin for this cycle. One look at the chart above shows that Bitcoin is well on the way to completing a peak-peak cycle, especially with the RSI nearing the point at which it traditionally corrects. We have no hope of a high five or six-figure Bitcoin price without a correction, and history shows that corrections from this point are over 70%.

The RSI itself is showing weakness – the flattening out shows that the strength that got Bitcoin there from the March lows is petering out. This puts it at a very precarious point, showing that if this isn’t the top then the top is very close:

Bitcoin RSI 2

In summary then, the bearish argument is that the top for this Bitcoin cycle is in and the rest of 2021 will see a gradual collapse down to around $10,000-$12,000, which will leech into 2022 until a reversal begins.

Bulls Argue That Time is On Their Side

Bulls also have a case. Yes, the chart makes it look like Bitcoin has completed a full peak-peak cycle, but we have to take into account the timeframe and the growth over time:

Bitcoin RSI 3

As Bitcoin has aged its market cycles have become longer, moving from months. This is traditional with new assets – market cycles become longer as the asset gets bigger. As we can see from the above chart, 2013 saw an eight month cycle, with the next peak not coming until four years later. It is really likely then that Bitcoin will go against tradition and suddenly shorten its market cycle length, particularly when its fundamentals are healthier than ever?

We also need to take into account the peak-peak gain market cycle gain. The jump from 350% in 2013 to a 1,584% gain in 2017 can be explained by the longer timeframe and the growth in awareness of the asset, an awareness that has only grown over the years since 2017. The 2020 price rise was driven almost entirely by institutional investors, retail has barely arrived, and the return compared to the last peak is currently sitting at a measly 113%. Is it really likely that Bitcoin will only grow by that much given the progress made since 2017?

Bitcoin Pullback is Coming – But How Far?

Bulls won’t deny that a pullback is imminent, and is in fact needed if anything like six figures are going to be reached in this cycle, but suggesting that this is the top and that a 70%+ correction over a couple of years is imminent could be considered premature.

Regardless of your outlook, it cannot be denied that the Bitcoin RSI is close to topping out, if it hasn’t already. We can expect a further pullback in the near future, but how deep the pullback is will do much to dictate how the rest of 2021 will play out.

What’s your outlook – are you bull or bear? Let us know on Twitter!