From November to December 2017, the price of bitcoin (BTC) rose correspondingly to $ 20,000 at full rate.
There are three reasons why Bitcoin may see a similar trend in the coming months. The cycle takes effect only after halving. Second, the Relative Strength Index (RSI) shows potential for further gains. Third, the rally was not exaggerated, at least not in the derivatives market.
Long-term RSI shows that Bitcoin is not overbought.
PlanB, creator of the Stock to Flow Index (S2F), shared a long-term RSI chart for Bitcoin. An index that measures whether an asset is overbought or oversold indicates that bitcoin remains at a neutral level.
Bitcoin Relative Strength Index (RSI). Source: PlanB
Although Bitcoin has surged from $ 10,500 to $ 14,600 in a month, the RSI shows there is room for another rally.
For example, in December 2017, Bitcoin’s RSI crossed 95 points. When the RSI crosses above 75, traders begin to believe that the asset is in the overbought zone. Currently, the long-term RSI for BTC shows that it is below 70 pips.
Through a half cycle as in the past
In 2017, one of the main Bitcoin growth accounts was cut in half in 2016. The halving of the bonus block, which occurs approximately every four years, led to the fact that the production of BTC by miners was halved.
The decline in bitcoin production results in an overall decline in bitcoin flows to stock exchanges, leading to a decrease in supply.
The second half happened in May 2020, and in 2017, bitcoin started to rise after months of halving activation. Bitcoin’s steady rally is in line with previous macroeconomic gains.
Not a feverish recovery, but a lack of sellers in the spot market
Over the past five days, Bitcoin funding levels have remained negative on major stock exchanges, especially Binance Futures. This indicates that much of the futures market has been short selling bitcoins.
The upside potential is considered excessive when the future financing rate begins to increase above the average interest rate, which is 0.01%. In recent weeks, BTC’s funding ratio has ranged from -0.01% to 0.01%, indicating a somewhat neutral derivatives market.
Apart from the pristine futures market, there are also fewer sellers in the spot market. According to TensorCharts, there are several $ 15,000 sell orders, but no major sellers at that level or above.
Bitcoin sells orders on Binance. Source: TensorCharts.com
With little resistance between $ 15,000 and $ 20,000, this increases the likelihood of a new record high in the coming months.
If the same halving cycle looks like this in 2017, Bitcoin will theoretically peak in the second quarter of 2021. If so, there is a possibility that Bitcoin will surpass $ 20,000.
The ongoing rally shows a very strong bitcoin momentum as miners started selling bitcoin. This indicates that the market is absorbing selling pressure from miners.