Bitcoin’s 100 percent price rally in the last eight weeks is about to be settled, according to Florian Grummes from Midas Touch Consulting.
In his newsletter , the investment strategist writes that the BTC / USD rate is expected to undergo a lengthy correction. He comments that despite the euphoria that sent prices up more than 400 percent from their mid-March low, the pair is still „deeply overbought.“
Red flags – amid green candles
In hindsight, certain technical indicators that measure an asset’s momentum based on its ongoing trends show that Bitcoin is an overbought financial instrument. That typically means that traders‘ bid on the benchmark cryptocurrency is now higher than its real cost, as indicated by a neutral momentum indicator.
For example, the Stochastic Oscillator, which Investopedia calls „an accurate buy and sell indicator“, shows Bitcoin in an overbought zone on its weekly chart. A similar metric known as the Relative Strength Indicator also reflects that the cryptocurrency is „too hot“ at current prices.
Grummes notes that Bitcoin remains bullish on its weekly timeframe, indicating a long-term upward trend that should continue through 2021. What this means is that the cryptocurrency is likely to correct downward or move sideways first to neutralize the overbought signals. But after that it should likely resume its uptrend.
“You also have to have nerves of steel to endure and survive possible large pullbacks in the order of 30-45% of the current price level,” he warns.
Bitcoin’s seasonal indicator
Grummes also measured the longevity of Bitcoin corrections using its seasonal fractals. The cryptocurrency saw itself exposed to extreme selling pressure from the bears in the last two December, which ultimately led BTC / USD to its seasonal lows.
This time around, the signs are that of a topping that could last into spring.
“Often times, the Bitcoin bull run ran out of steam in early or mid-December,” said Grummes. „Either a sharp corrective movement followed and / or several months of sideways consolidation.“
That being said, the analyst comments that Bitcoin could still make a new record high above $ 20,000 (a psychological upside target) but may not be able to hold the flipped level as support.
BTC / USD was trading at $ 19,520 at the time of this writing.