The dreaded and much-anticipated Bitcoin drop through major support finally occurred yesterday, sending shockwaves throughout the entire industry. Many are giving up all hope of a recovery as social media is filled with users expressing their despair and capitulation tightens its grip. However, there is still some cause for hope.
The daily Relative Strength Index (RSI) for Bitcoin (BTC) has entered historic territory, plunging deep into oversold territory. So deep, in fact, you have almost certainly never seen it so low.
The above chart displays the price history of Bitcoin (BTC) on the Bitstamp cryptocurrency exchange — which features a longer history than that of Coinbase and others.
As you can see from Bitstamp’s chart, the RSI has never been so low. Ever.
Bitcoin has never been more oversold in its history.
Let that sink in.
What is the Relative Strength Index?
The Relative Strength Index (RSI) is a popular momentum indicator that is commonly used to identify when a stock, commodity, or cryptocurrency has been overbought or oversold. It accomplishes this by measuring the magnitude of recent price action.
It is measured using the formula: RSI = 100 – 100 / (1 + RS). In that formula, RS equates to the average gains divided by the average losses during a specified time period.
No indicator is perfect. That is a fact.
Technical indicators are best used when a variety is considered and applied to a well-adjusted trading or investment strategy. Reliance on one indicator alone is foolish.
That said, it would also be foolish to deny the fact that the daily RSI is clearly displaying extreme oversold conditions for Bitcoin (BTC). Does that mean it will bounce back up to $10k in the coming months? Of course not. It does mean, however, that selling into the current Bitcoin drop might not be the wisest plan, as what goes down (in theory) must eventually come up.
What do you think about the Bitcoin drop and BTC’s oversold conditions? Let us know in the comments below! And while you’re at it, check out our honest review of Bitstamp!