Metric analysis

Bitcoin’s key momentum metric just flashed lower with BTC price pinned below $ 50,000

The rise in the price of Bitcoin (BTC) towards $ 50,000 last week may be exhausted due to a mismatch between the price of the cryptocurrency and momentum trends.

So it seems that the price and the relative strength index (RSI) of Bitcoin have been moving in the opposite direction since the end of July. In doing so, even a strong surge in BTC / USD bids coincided with lower momentum spikes, suggesting that the pair’s bullish momentum is weakening.

Bearish divergence

A normal RSI momentum tends to slow down the price action. Having said that, it increases when the price goes up and decreases when the price goes down. But in some cases, the RSI deviates from further price movement, leading to what is called a RSI divergence.

Technical analysts see RSI divergence as a strong signal for spot price reversals. For example, a bullish divergence, in which the price falls and the RSI rises, prompts traders to buy the asset in anticipation of a rebound. Likewise, a bearish divergence, characterized by rising prices and falling RSI, prompts traders to take profits at the top while expecting a pullback.

The Bitcoin daily chart below shows the cryptocurrency in bearish divergence.

BTC / USD 1D chart showing a bearish divergence. Source: TradingView.com

The bearish signal appears as Bitcoin struggles to break the rise above $ 50,000. On Sunday, the benchmark cryptocurrency traded at $ 48,387, down 4.19% from its three-month high of $ 50,505 reached on August 3, after a similar upward boom of 72.36%.

On the flip side, Bitcoin’s daily RSI initially rallied to price, but peaked on July 30, which was well ahead of price, reaching $ 50,505. Since July 30, the price of Bitcoin has formed a sequence of higher highs while the RSI has printed lower highs, suggesting a weakening of the bullish momentum.

A similar bearish divergence between January and April 2021 helped predict a decline in Bitcoin prices, as seen in the chart below.

Bitcoin-RSI price divergence for the period January-April 2021. Source: TradingView.com

Bullish indicators

The bearish divergence signal comes as Bitcoin holds strong above $ 30,000 as it is expected to become a prime hedge among accredited investors against inflationary pressures.

This perception has led many analysts, including investment researcher Lyn Alden and Fundstrat CEO Tom Lee, to predict a valuation of $ 100,000 for the cryptocurrency in 2021.

The price of bitcoin climbed $ 1,500 in an hour on Friday after Federal Reserve Chairman Jerome Powell presented an inflation-friendly policy outlook at this year’s Jackson Hole Symposium.

As a result, the biggest bullish indicator for Bitcoin remains the Fed’s aggressive $ 120 billion per month asset purchase program, coupled with its near zero interest rate policy.

Related: Bitcoin Price Returns As 3 Indicators Reflect BTC’s Strength

Strong fundamentals prompted technical analysts to consider a long-term uptrend in the Bitcoin market. Namely, independent market analyst Teddy Cleps presented a bullish outlook for cryptocurrency, based on key wave support which acts as an accumulation zone for traders.

Bitcoin 4H chart with wave support. Source: Teddy Cleps, TradingView.com

Likewise, Ryan Clark, another market analyst, noted that Bitcoin is simply consolidating below $ 50,000, just like when it traded below $ 24,000 before the December 2020 breakout.

On the other hand, TraderXO Noted that Bitcoin could fall further towards the $ 39,000-40,000 area, but remained confident the cryptocurrency would register an attractive rebound from the lower range.

The analyst marked Bitcoin’s all-time high near $ 65,000 as his long-term bullish target.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.