From November to December 2017, the price of Bitcoin was (BTC) experienced a parabolic upward trend towards a new high of $ 20,000.
There are three reasons Bitcoin could see a similar trend in the coming months. First, the post-halving cycle kicks in. Second, the relative strength index (RSI) shows scope for a bigger rally. Third, the rally has not overheated, at least in the derivatives market.
Long-term RSI shows that Bitcoin is not overbought
PlanB, the creator of the Stock to Flow (S2F) indicator, shared a long-term RSI chart of Bitcoin. The indicator, which measures whether an asset is overbought or oversold, indicates that BTC is still at a neutral level.
While Bitcoin has risen from $ 10,500 to $ 14,600 within a month, the RSI shows there is room for more benefits.
For example, in December 2017, Bitcoin’s RSI exceeded 95 points. When the RSI crosses 75 points, traders start to view the assets as overbought. Currently, BTC’s long-term RSI shows it to be below 70 points.
The post-halving cycle comes about like the past
In 2017, one of the main stories surrounding the rise of Bitcoin was its halving in 2016. A halving of the block reward, which occurs approximately every four years, reduces the rate at which BTC is produced by miners by half.
The slower production of Bitcoin is leading to an overall decline in BTC inflows into exchanges, causing supply to drop.
The the last halving took place in May 2020, and in 2017, Bitcoin started to recover months after the activation of the halving. Bitcoin’s ongoing rally is in line with its past macro rallies.
No overheated rally, less sellers on the spot market
For the past five days, Bitcoin’s funding rate has remained negative on major exchanges, particularly Binance Futures. This shows that most of the futures market has been short in BTC.
A rally is considered overheated when the funding rate of the futures starts to rise above the average rate, which is 0.01%. In recent weeks, BTC’s funding rate has fluctuated between -0.01% to 0.01%, showing a fairly neutral derivatives market.
In addition to the non-busy futures market, there are also fewer sellers on the spot market. According to TensorCharts, there are some sell orders for $ 15,000, but no major sellers at that level and above.
Since there is little resistance between USD 15,000 and USD 20,000, this increases the odds of hitting a new high in the coming months.
Following the same post-halving cycle as 2017, Bitcoin would theoretically peak in the second quarter of 2021. If so, there is a chance that BTC could reach well above USD 20,000.
The ongoing rally is showing immense momentum for Bitcoin because miners have started selling BTC. This shows that the market is absorbing the selling pressure from miners.