Right now there is a lot of confidence in the crypto market again. And there are good reasons for that. Because the cryptocurrencies started the year with a strong rally.
The price of Bitcoin has increased by about 28 percent since the beginning of the year. With Ethereum, the most valuable altcoin, it is even more than 30 percent. Cardano’s course even rose over 40 percent and Solana buyers can expect a price explosion of almost 150 percent this year, as reported by kryptoszene.de.
The fear in the crypto market is gone
The Fear and Greed Index, which uses different criteria to measure investor sentiment, also shows that fear has left the market. This jumped to 51 out of 100 and thus into the neutral zone. Before that, he was in the “Fear” zone for months, which will determine fear.
But as positive as the signs are at the moment and there is legitimate hope that the uptrend will continue, there are also warning signs that could speak for a slowdown and perhaps even another major correction. Kryptoszene.de uses technical indicators and chart signals to show why investors should be cautious these days despite all the excitement about their profits.
Bitcoin is considered to be the central trendsetting currency for the entire crypto market. And here the technical indicators show why a timely correction is still possible despite the bullish rally of recent weeks.
Relative Strength Index sounds the alarm: Bitcoin massively overbought
A particular cause for caution here is the Bitcoin Relative Strength Index on the daily chart. This indicator, which uses a scale from 0 to 100 to assess whether an asset is overbought, oversold or in a neutral zone, is currently showing a strong trend.
At the time of publication, the Relative Strength Index was just below 90. According to this indicator, Bitcoin is currently extremely overbought. An asset is already considered overbought at level 70, and oversold at level 30 and below.
The last time Bitcoin had seen such a high RSI on the daily chart was on January 8, 2021. Back then, Bitcoin had previously seen a strong Rally and the price exploded from $18,000 to around $42,000 within a month. A jump in price of more than 133 percent. However, once the RSI touched that level around 90, the price corrected to below $29,000 within two weeks, a decline of more than 30 percent.
Highest RSI reached in two years
Right now, that RSI is already high, even though Bitcoin hasn’t even increased by 30 percent this year. This shows that the market structure is significantly different from the bull market at the time and that this relatively small increase is the result of an extremely overbought RSI at the moment.
So the RSI could indicate an impending correction. However, a prolonged period of consolidation at current prices could cause the RSI to cool and pave the way for further gains.
Bitcoin tests key resistance
Another warning sign on the daily chart is that Bitcoin price is now set in a strong resistance zone after a rally. In the $21,500 area, BTC/USD was rejected in early November followed by a sharp correction. However, this was prompted by the crash of the FTX crypto exchange. So far, such a negative event is not evident.
For the analysis, it is still worth looking at the American stock markets. Because the Bitcoin course has a high correlation with the traditional markets and usually follows their direction.
The US stock index S&P 500 could now correct
If you look at the S&P 500, the stock index with the 500 most valuable listed companies in the USA, the daily chart shows that the price has reached an important resistance zone at the moment. The index has repeatedly tested this falling resistance line.
However, at the all-time high of around 4,820 points at the beginning of 2022 and in March, August and December 2022, the index was clearly rejected in this zone and followed by a major correction.
If the resistance is not overcome in this attempt as well and cannot sustainably jump above 4,000 points, the next big correction in the S&P 500 is very unlikely. In this case, the bitcoin and crypto market would be expected to fall if accordingly.
US dollar: Bitcoin’s new strength could weaken
The US dollar could play another important role in the price trend of bitcoin and altcoins. Previous experience has shown that when the dollar strengthens, both stock and crypto prices suffer. Because when the dollar is strong, it is more interesting for investors to invest in classic bank savings or keep cash instead of putting it in riskier investments like shares or cryptocurrencies.
Analysis of the dollar chart shows a strong rally in the US dollar since the beginning of 2022. The index climbed from below 90 points in January 2022 to around 115 points at the end of September 2022. During the same period, the crypto market had its big crash.
But the tide has currently turned in favor of the crypto and stock markets. Because within about 3 months the index fell back to 100 points. The dollar is currently at its weakest level since May 2022.
But now the dollar has reached an important support zone, as the daily chart shows. If there is support here, a trend reversal could occur which could bring the dollar back higher. In this case, based on the previous constellation, weakness in crypto and share prices would have to be expected.
At present these are only theoretical assumptions. However, the aforementioned technical indicators and chart patterns indicate that a major correction could be in store for Bitcoin and cryptocurrencies. The coming days should already provide information on what will happen now.
Goodbye C+ Charge now in pre-sale
Are you looking for an investment for the new year? In addition to the purchase of Bitcoin, there are also promising new cryptographic projects in the market. This also includes Charge C+, which links investment opportunities with environmental aspects. By purchasing CCHG’s native token, C+Charge, investors will be able to trade carbon credits. There is a CCHG signal at the moment. In this way, investors can make an environmental contribution and benefit from potential returns without buying an electric car.
Cryptocurrencies are a highly volatile, unregulated investment product. Your capital is at risk.