Bitcoin price is back at the low $40,000 range, the market is extremely fearful, and there’s plenty of macro influences to be bearish over. However, that’s often the best time to buy.
For now, it might be time to wait patiently a while longer to see if an ultra important level on the RSI can hold. If it doesn’t, capitulation could be in the cards. Here’s a closer look at why that might be.
What Bitcoin Capitulation Looks Like: A History Lesson
Not only is Bitcoin trading at right around $42,000, it is also trading at a reading of 42 on the weekly Relative Strength Index.
The Relative Strength Index is a bounded technical analysis oscillator, giving readings between zero and one hundred. It was designed to signal when an asset is overbought or oversold, by reaching a reading over 70 or below 30 respectively.
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However, other levels on the RSI are of particular importance for some assets. In the case of Bitcoin, a reading of 42 is typically a buy signal.
Less than a handful of period exist where Bitcoin traded below this level on the RSI. These instances have occurred following rounded support being established, then broken. The only time this didn’t happen was back when Bitcoin was trading below $5 per coin.
With this RSI level hold? | Source: BTCUSD on TradingView.com
Why This Level On The RSI Matters For Crypto
Outside of the one anomaly, a rounded false bottom is established at a reading of 42 on the RSI, and is then broken to put in a final bottom and send the RSI below the key level.
If 42 on the weekly RSI is swept once again, the crypto market might experience capitulation like the first four times the RSI plummeted below it.
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Three out of four times had previous support broken. Of the three times this has happened, the most extreme fall afterwards caused another 68% collapse. Other times was closer to 50%.
Breaking below the support level could result in a sharp reversal to new highs, meaning that despite the reason to be cautious, the outlook isn’t all negative. There is also a chance that such a reading on the Relative Strength Index produces a strong enough bounce for one more wave higher before a more painful bear market arrives. Which is why Bitcoin is ultimately at a bounce or die level for crypto bulls.
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Featured image from iStockPhoto, Charts from TradingView.com