Key Takeaways
- •Bitcoin’s velocity RSI metric has returned to levels historically seen only around bear market bottoms.
- •Analysis suggests that BTC price action may be undergoing a "major cyclical reset."
- •The crypto long/short ratio is exhibiting unusual behavior as Bitcoin experiences a price decline.
Velocity RSI Indicates a Potential BTC Price Bottom
In a recent X post, analyst On-Chain Mind highlighted rare single-digit readings on Bitcoin’s velocity relative strength index (RSI) indicator. These readings have historically coincided with the formation of bear market bottoms.
The Velocity RSI, which considers recent price momentum changes, has fallen below 10/100, reaching some of its most oversold levels ever recorded. This technical signal is considered by some to be a strong indicator of market bottoms.
“The Velocity RSI on the 3-day chart has just hit its lowest reading since the bottoms of the last 3 bear markets,” On-Chain Mind stated, suggesting that Bitcoin’s price action might be performing a significant cyclical reset.
Historical charts accompanying the analysis show similar patterns at the end of Bitcoin's 2018 bear market and midway through 2022, a period preceding the most recent confirmed bear market floor.
“It’s one of the more reliable, widely-tracked momentum exhaustion indicators, and it’s now flashing a level we only see at major cyclical resets,” On-Chain Mind added, emphasizing the significance of this technical development.
“An interesting technical signal worth paying attention to.”
Unusual Behavior in Bitcoin's Long/Short Ratio
While the Velocity RSI points towards a potential bottom, Bitcoin’s current price behavior presents some divergences from past bearish phases, particularly concerning the long/short ratio.
Joao Wedson, founder and CEO of crypto analytics platform Alphractal, observed an unusual phenomenon this week. Historically, when Bitcoin’s Long/Short Ratio rises above the average of major altcoins, it has served as a strong indicator of a price bottom forming.
“Over the years, we’ve identified several strong Alpha signals in the crypto market. One of the most reliable has always been this: when Bitcoin’s Long/Short Ratio rises above the average of major altcoins, it historically points to a price bottom forming. But this time something different happened,” Wedson explained on X.
“For the first time ever, BTC kept this ratio at extremely elevated levels for an unusually long period — and yet we saw false bottom signals throughout November, while the price continued to drop.”
Wedson elaborated that this divergence could have negative implications for bulls. Traders exhibiting an eagerness to long BTC while attempting to catch a falling knife might create opportunities for large-volume players to liquidate them by further driving down the price.