Bitcoin’s 100 percent price rally over the past eight weeks is about to be settled, according to Florian Grummes of Midas Touch Consulting.
In his newsletter, the investment strategist writes that the BTC/USD rate is likely to go through a protracted correction. He comments that despite the euphoria that has seen prices rise more than 400 percent from their mid-March lows, the pair is still in a „severely overbought situation.“
Red flags – amid green candles
With the benefit of hindsight, certain technical indicators that measure the momentum of an asset based on its ongoing trends show that Bitcoin Champion is an overbought financial instrument. This typically means that traders‘ bid for the benchmark cryptocurrency is now higher than its actual 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.
Bitcoin broke above its classic falling trendline resistance in July, indicating a sustainable uptrend.
Grummes notes that Bitcoin remains bullish on its weekly time frame, indicating a long-term uptrend that should last through 2021. By that, he means the cryptocurrency is likely to initially correct lower or run sideways to neutralize the overbought signals. But after that, it should probably resume its uptrend.
„You also have to have nerves of steel to endure and survive potential big pullbacks in the range of 30-45% from current price levels,“ he warns.
Bitcoin’s seasonal indicator
Grummes has also measured the longevity of bitcoin corrections using his seasonal fractals. For example, the cryptocurrency faced extreme selling pressure from bears in the last two Decembers, which eventually led BTC/USD to its seasonal lows.
This time, the signs are that of a top that could last until spring.
„Often, Bitcoin’s bull run has run out of steam in early or mid-December,“ Grummes said. „Either a sharp corrective move and/or several months of sideways consolidation have followed.“
That being said, the analyst comments that Bitcoin could still form a new record high above $20,000 (a psychological upside target), but may not be able to hold the inverted level as support.
BTC/USD was trading at $19,520 at the time of this article’s publication.