3 Reasons Bitcoin is a Screaming Buy Today

by James · February 9, 2023

The recent resurgence in Bitcoin’pp (BTC -4.16%) price has proven to be a spark of life for the entire cryptocurrency asset class. As of this writing, the world’s first and most valuable cryptocurrency is up more than 20% in the past week, catapulting its market cap to be worth more than industry giants like. Walmart, Alibaba Group Holdingand Meta platforms.

While Bitcoin’s recovery of the $20,000 mark appears to have attracted renewed interest from investors, the recent swing in prices may just be the beginning. The conviction in this comes from three metrics that have historically proven reliable in marking Bitcoin’s next stage.

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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 use of the RSI states that values above 70 indicate that an asset is overbought. Values below 30 usually mean that assets are oversold and therefore undervalued.

Investors can look at Bitcoin’s RSI on different time scales, but the most interesting one is the weekly one. After months of trading below 40 and at one point bottoming out at 26 in June 2022, Bitcoin’s latest 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 the RSI was below 50 and then climbed back above usually resulted in moves in which Bitcoin’s price skyrocketed, but there have been cases where it later fell back below that level after about a month. If Bitcoin can hold this line for more than a month, the steady uptrend should serve as a reason for cautious optimism that the worst of this bear market may be over.

Measuring Bitcoin’s Health: 200-Week Moving Average

Before calling for an end to a bear market, one thing must happen: Bitcoin must regain the 200-week moving average (WMA). Historically, few other metrics have proven to be as useful an indicator of Bitcoin’s health as the 200 WMA.

This indicator takes the average price of Bitcoin’s last 200 weeks and turns what appears to be volatile and choppy price action into a smooth line. This line has proven its resilience as one of Bitcoin’s strongest support levels as it has only fallen below the 200 WMA on five occasions in its history.

Bitcoin is still below the 200 WMA level, but it is getting closer every day to regaining this level. And if it does, it could be the last time it goes down for a while. Typically, Bitcoin bounces off the 200 WMA, but has spent the majority of the past year below that. In the past when Bitcoin fell to the 200 WMA it was usually followed by renewed price momentum which usually signaled the end of a bear market.

With only a few thousand dollars separating the 200 WMA and the current price, a recovery could be just what Bitcoin needs to put this crypto winter in the rearview mirror.

Analyzing Bear Market Trends: Comparing Duration

The last indicator is also the most basic, no fancy lines needed. When comparing the duration of previous 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 cut on October 20, 2021, when it reached almost $70,000. Assuming that the bottom for Bitcoin was reached on November 21, 2022, when the price reached as low as $15,700, then the length between these 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 calculations to draw good conclusions and develop strategies. This idea is not intended to time the market. Rather, the aim is to maximize the return. The combination of Bitcoin’s bullish RSI levels, near retracement of the 200 WMA and the duration of previous bear markets suggest that this could be an excellent buying opportunity to grab some Bitcoin before the price rises again.

Randi Zuckerberg, a former director of marketing development and spokeswoman for Facebook and sister of 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.