Bitcoin may not move at all until spring 2021 – or fall
Bitcoin’s 100 per cent 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 undergo a protracted correction. He comments that despite the euphoria that has seen prices rise more than 400 per cent from their mid-March lows, the pair is still in a „heavily overbought situation.“
Red flags – amid green candles
With the benefit of hindsight, certain technical indicators that measure an asset’s momentum based on its ongoing trends show that Bitcoin 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 The News Spy 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 time frame, indicating a long-term uptrend that should last until 2021. By that, he means the cryptocurrency is likely to initially correct lower or run sideways to neutralise the overbought signals. But after that, it should probably resume its uptrend.
„You also have to have nerves of steel to endure and survive possible big pullbacks in the order 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 followed.“