- Bitcoin has established a channel which has allowed alts to flourish
- A wedge has been created which may give alts another week to move
- The RSI is still heavily overbought on Bitcoin, and history tells us a further pullback is imminent
Bitcoin is currently in an uncertain position, with a fine balance between bears and bulls as to where it goes next. It has certainly been cooling down since hitting $42,000 at the start of the year, but is the dip over or are we facing a deeper correction? Let’s see what the charts tell us.
Bitcoin Creates Channel and Wedge
Having temporarily topped out at $42,000, Bitcoin’s corrective behaviour since has left it operating in a channel:
This channel, combined with dropping Bitcoin dominance, has allowed alts to have a field day, with the likes of DOT and REN doing particularly well. As long as Bitcoin can keep ranging here then alts will continue to do well, but that might not be the case for too much longer. Bitcoin’s drop to $33,390 has created a wedge that started back on January 4 and looks set to resolve within a week:
Typically, such a wedge after a strong move signals continuation of that same move, but there is every chance that this could in fact represent a local top after Bitcoin’s mammoth run, which has only seen one or two significant pullbacks. This should give alts another few days to make potential gains, for those who don’t mind a bit of risk.
RSI Remains Overbought
We can get another clue as to the potential direction when we look at the RSI levels, especially in comparison to the previous bull run:
Here we can see that the RSI has started to correct after hitting 95, which is a result of selling. But we don’t have to take this in isolation. The 2017 runup to $20,000 saw multiple pullbacks, all of which happened when the RSI hit 80:
As we can see, every time the RSI strayed over 70 it eventually precipitated a pullback below that line again before enjoying another upward spike. This is natural in a bull market, especially when we have enjoyed an 11x gain in less than a year. Of course we can’t be sure that history will repeat itself, but every single time that Bitcoin has gone over 80 on the RSI it has pulled back to below 70, and this current run has seen us hit 94.63.
If history is our guide then, we have to believe that we are only part way through the correction and there is more pain to come, which could happen in a week if this newly formed wedge is to be the catalyst. In the meantime however, alts can still continue to shine…just be watchful for that inevitable Bitcoin move.
