The recent resurgence in Bitcoin’s (BTC 1.35%) price has proved to be a spark of life for the entire cryptocurrency asset class. At the time of this writing, the world’s first and most valuable cryptocurrency is up more than 20% in the last week, which catapulted its market cap to be worth more than industry giants like Walmart, Alibaba Group Holding, and Meta Platforms.
While Bitcoin’s reclamation of the $20,000 mark seems to have drawn renewed interest from investors, the recent swing in prices might only be the beginning. Conviction in this comes from three metrics that historically have proved to be reliable in marking Bitcoin’s next leg up.
Understanding the indicator: Relative strength index
The relative strength index (RSI) is a value used to measure the speed and magnitude of an asset’s recent price changes to evaluate whether it is overvalued or undervalued. RSI values range from 0 to 100. Traditional usage of RSI states that values above 70 indicate that an asset is overbought. Values under 30 usually mean assets are oversold and, therefore, undervalued.
Investors can look at Bitcoin’s RSI on various time scales but the one of most interest is the weekly one. After months of trading for below 40 and at one point bottoming out at 26 in June 2022, Bitcoin’s most recent move sent its RSI to around 50 — a crucial threshold. Based on historical RSI data, when Bitcoin reaches an RSI of 50, it can serve as fuel for sustained momentum.
Periods where RSI was below 50 and then climbed back above typically resulted in moves where Bitcoin’s price rocketed, but there have been instances when it subsequently fell back below the level after about a month. If Bitcoin can hold this line for more than a month, the stable uptrend should serve as a reason for cautious optimism that the worst of this bear market might be over.
Measuring Bitcoin’s health: 200-week moving average
Before calling for an end to any bear market, one thing needs to happen: Bitcoin must reclaim the 200-week moving average (WMA). Historically, few other metrics have proved as useful an indicator of Bitcoin’s health as the 200 WMA.
This indicator takes the average price of Bitcoin’s past 200 weeks and turns what looks to be volatile and choppy price action into a smooth line. This line has proved its resiliency as one of Bitcoin’s strongest levels of support as it has only fallen below the 200 WMA on five occasions in its history.
Bitcoin still finds itself below the 200 WMA line, but it is getting closer by the day to reclaiming this level. And if it does, it might be the last time it falls below for quite a while. Typically Bitcoin bounces off of the 200 WMA but has spent the greater part of the last year under it. In the past when Bitcoin fell to the 200 WMA it usually was followed by renewed price momentum that usually signaled the end of a bear market.
With just a few thousand dollars separating the 200 WMA and its current price, reclamation might be just what Bitcoin needs to put this crypto winter in the rearview mirror.
Analyzing bear market trends: Duration comparison
The last indicator is also the most basic, no fancy lines needed. When comparing the duration of past bear markets, measured from top to bottom, investors are currently in the longest bear market in history. Historically, Bitcoin bear markets lasted around 311 days.
Bitcoin’s previous all-time high was notched on Oct. 20, 2021, when it hit nearly $70,000. Assuming the bottom for Bitcoin was reached on Nov. 21, 2022, when its price reached as low as $15,700, then the length between those two dates is 397 days, well past the average bear market.
Investing is about maintaining a long-term view, but it doesn’t hurt to look at short-term metrics to make sound conclusions and develop strategies. This idea isn’t meant to time the market. Rather, the goal is to maximize returns. The combination of Bitcoin’s bullish RSI levels, near reclamation of the 200 WMA, and the duration of past bear markets suggests that this might be a prime buying opportunity to grab some Bitcoin before its price rises again.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Meta Platforms, and Walmart. The Motley Fool has a disclosure policy.