For the first time ever, Bitcoin (BTC 0.01%) will record its first four-month stretch of relative strength index (RSI) value of less than 42. Not only is this the longest the RSI has been lower than 42, but it will also be the first monthly close of Bitcoin’s RSI below 39. Pending some sort of massive jump in price, Bitcoin’s November RSI will likely be somewhere around 38, a level it has never reached before.
The relative strength index (RSI) is a metric used to measure the speed and magnitude of an asset’s recent price changes to evaluate whether it is overvalued or undervalued. The thinking goes that when an asset’s RSI falls into undervalued territory, it’s theoretically a great time to buy since the risk of prices falling further is supposedly minimal.
Bitcoin and RSI
It should be noted that this doesn’t mean prices must return to highs immediately. In fact, RSI values can stay in undervalued territory for months at a time. The advantage of tracking an asset’s RSI is that investors can make more informed decisions based on current conditions in a broader, historical context.
RSI values range from 0 to 100. Traditional usage of RSI states that values above 70 indicate that an asset is overbought, and thus overvalued. Conversely, values under 30 are usually the measure of when assets are oversold and, therefore, undervalued.
RSI has historically been used for stocks, but it can serve a similar purpose with cryptocurrencies such as Bitcoin. Like stocks, we can see how Bitcoin behaved in the past when it reached similar levels. Throughout its history, Bitcoin has gone through a handful of its own bear markets. During these periods, Bitcoin’s RSI fell to levels around the low 40s for months at a time. In the bear market of 2015, the RSI remained in the 40s for nine months. Over the course of the last bear market in 2018 and 2019, Bitcoin traded at an RSI lower than 45 for five months before making a rally.
Now we are in a similar situation but with some significant differences. Bitcoin’s RSI has been lower than 43 for the past six months now, a new record. Historically, past bear markets have been in undervalued territory for roughly the same duration but never this low. Pending any sort of new price momentum, the November monthly RSI will be a new record low for Bitcoin at about 38. The previous monthly record came in June 2022, when it hit 39.
Will this time be different?
To some, this might resonate as a reason to stay away from Bitcoin until healthier levels are regained. However, looking at these past periods when the RSI reached the 40s or even 30s, one pattern quickly becomes evident. On average, once the RSI bottoms, it takes roughly a year and a half before the RSI returns to 70. Once the RSI hits 70, it provides the fuel for Bitcoin to make a serious bull run, and it takes about 10 months before a new all-time high is made.
These are just averages, and this time around could surely be different. There are additional circumstances affecting Bitcoin, unlike years past. For the same reasons the stock market has struggled, it turns out Bitcoin isn’t resistant to fears of inflation and rising interest rates. Perhaps this bear market for Bitcoin lasts longer and is deeper than others.
Even if that is the case, past data show that Bitcoin is capable of recovering and those that have an investing strategy for the long term have the most to gain. Should this actually be the bottom of Bitcoin’s woes, then based on historical trends, Bitcoin would be hitting an RSI of 70 around the time of its next halving (May 2024). Once that key level of 70 is hit, past data suggests that a new all-time high could be notched sometime in early 2025.
Hindsight always seems to be 20/20. In each of these past bear markets, critics have written Bitcoin off — yet it has always bounced back. History shows that those who play the long game gain the most. Patience and consistency are key during times like these.