A recent volatile run-up in the Ethereum and Bitcoin markets has exceeded their value in “overbought” regions, according to the Relative Strength Indicator (RSI).
In retrospect, the RSI is a momentum indicator that measures the magnitude of recent price changes in an asset to determine overbought or oversold conditions. Shown as an oscillator, it can have a value between 0 and 100, with 30-70 serving as a neutral area. Traders consider RSI over 70 as overbought and under 30 as oversold.
They further regard an overbought RSI as their signal for a possible trend reversal or a price drop.
Bitcoin’s RSI is following jumped from $ 3,858 in March to more than $ 41,000 in January has risen to 89.48 on the daily chart. Meanwhile, the same value for Ethereum stands at 89.36 after moving $ 1,335 percent over the same period.
Ethereum trades near its yearly high as its RSI signals topping out. Source: ETHUSD on TradingView.com
Typically, the overstretched rallies in both assets have prompted some analysts to see deeper price corrections, predict a 50 percent decline of their respective session tops. Nevertheless, one analyst believes that traders should not sell their Bitcoin and Ethereum based on RSI warnings.
Koroush AK, who successfully predicted Bitcoin’s record high in 2020, says that RSI is not a good indicator when it comes to measuring ‘parabolic uptrends’. Instead, it works quite well in determining movements in different markets.
RSI is an oscillator.
-Great for a variety of markets
So less for parabolic uptrends
– Koroush AK (@KoroushAK) January 8, 2021
The statements came as Ethereum and Bitcoin’s RSIs continue to hit higher and higher highs, despite remaining in an overbought zone on the weekly charts. That reflected greater euphoria among cryptocurrency market traders, especially in the wake of a rapidly growing institutional awareness about Bitcoin’s anti-inflation properties.
Institutions that compensate for RSI fears
Observers believe that institutions buy the local price cuts. CryptoQuant CEO Ki-Young Ju further highlighted the trend by proving greater BTC outflows from Coinbase Pro to newly created wallets.
The analyst noted that the recipients’ addresses were conservative in nature, indicating an increase in over-the-counter deals even as Bitcoin soared above $ 30,000.
“Looking at the latest Coinbase outflows, possibly OTC deals, I think we can estimate their PNL,” he tweeted on Friday. BTC Up 24% since January 2. If you were institutional investors, would you be happy with a 24% PNL for Bitcoin? Bullish. “
Coinbase Pro OTC deals have returned 24 percent gains to institutional investors. Source: CryptoQuant
This partly explains why retailers ignored RSI warnings in the previous daily sessions. But the question remains how far could the sustained rally in both Ethereum and Bitcoin markets last? An analyst thinks they will correct based on the same RSI warnings.
“RSI has called this move better than any other traditional instrument and it called for a Mega move,” the pseudonymous entity said in response to Mr AK.