Bitcoin Regains Momentum but Overbought Conditions Threaten Continued Rally

Bitcoin’s price bounced back Monday, though the extent of the rally was fairly modest compared with last week’s gain, a sign that overbought conditions were finally taking their toll on the market. The leading digital currency continues to find strong support near $5,000 but has failed to set new yearly highs since last Wednesday.

BTC/USD Update

The bitcoin price peaked at $5,218.60 on Bitfinex and was last seen trading at $5,182.90, where it was little changed. In either case, the price has pulled back from extreme overbought levels seen last week. The relative strength index (RSI) on the daily chart peaked near 90, levels not seen since the height of the bull market in 2017. Any reading above 70 signifies overbought risk.

Market-wide data from CoinMarketCap show an average bitcoin price of $5,168 at the time of writing. That represents a gain of 1.5% over the past 24 hours. Reported trade volumes have declined sharply over the past week but remain well above levels seen in the past year. CoinMarketCap reports more than $11.2 billion in BTC market turnover on virtual currency exchanges.

At current levels, bitcoin’s market capitalization is worth $91.2 billion. Bitcoin’s dominance rate is currently 51.9% of the entire cryptocurrency market.

Start of a New Cycle

As Hacked reported on Saturday, bitcoin only recently entered a new four-year cycle, which represents a new market paradigm that could set the stage for an eventual return to record highs. The path forward is far from linear and investors can expect several price shakeouts sprinkled in between prolonged periods of lateral trading.

We can be relatively confident that bitcoin has entered a new market cycle because of the gap between current prices and the multi-year low set in December. The longer bitcoin holds at current levels, the less susceptible it will be to a new bear-market low.

If the present cycle began in January, give or take, then the four-year horizon will have run its course by the end of 2023. Of course, these are only approximate periods and may be slightly shorter or longer. Bitcoin’s last four-year cycle was marked by a 153-week uptrend and a 52-week bear market for a total of 205 weeks. That’s about three weeks short of a full four years.

Additional reading – Crypto Weekly Recap: Market Correction Fails to Shake Bitcoin Bulls.

Bitcoin is coming off back-to-back monthly gains following a brutal half-year losing streak. Based on previous cycles, bitcoin’s rally could extend for another two-three months before another shakeout ensues. That’s because, historically, bitcoin’s dominant trends have lasted an average of five-to-six months, according to crypto trader Bob Loukas (both timeframes are within the aforementioned four-year cycle).

Read more about bitcoin’s emergence from the bear cycle: Crypto Spring? Bitcoin on Track to Snap Six-Month Losing Streak Following Spectacular Week.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

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Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi
Comments
  • Hi Sam, thanks for the article. Just have a question – as reported, the recent spike in BTC price at the start of April, was caused by large buy orders from a single actor across multiple exchanges.
    Would this action alone usher in a new cycle for BTC ? What if this same whale sells the BTCs again ? Would be go back in the previous cycle ?

    • Hi msalekar, you are correct. The recent spike seems to have been triggered by that $100 million order across three exchanges. It was executed at the exact same time. That seems to have sparked the latest uptrend (20% in Asia initially). But as we reported at the time, the ‘writing on the wall’ for a rally was already there, and has been building since January. The same whale is unlikely to offload his whole position. Even if he did, we’ve seen a sharp decline in short interest in bitcoin for the past 3-4 months. The market has turned. That’s definitely clear.

      We are in a new four-year cycle but that doesn’t mean prices will just continue to rise indefinitely. You should expect some punishing pullbacks in the months ahead (like we’ve seen previously) but this is normal. We are in a new market paradigm. Don’t invest money you absolutely need right now (or else you won’t endure the ups and downs of the next few years). Only invest what you are comfortable with so that you can ride out the cyclical ups and downs. I think the next bull market (2-4 years) will be monumental in scale. If you are day trading, then of course your approach/outlook will be different.

      Hope this helps.

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