Crypto Markets Analysis: Bitcoin’s Relative Strength Readings Are in Rare Territory

Crypto markets still appear to be operating within a “good economic news equals bad news for asset prices” landscape.

A 15,000 weekly decrease in the number of Americans filing for unemployment insurance points to a stubbornly tight labor market Fed officials want to see loosen. But signs of economic slowdown appeared in housing data, with building permits for December down 1.6% versus expectations for a 3.7% increase. Housing starts fell 1.4% to their lowest level in five months.

Cryptos responded in kind, testing lows but then recovering as investors chewed over the conflicting data. Bitcoin declined temporarily to $20,780 before finding its footing. The largest cryptocurrency by market capitalization was recently trading a little below $21,000. Ether's price also dropped, to $1,513, before rising to near $1,550.

Unusual RSI readings

BTC’s recent 25% price surge came with a sharp uptick in momentum. A look at past data shows just how unusual the recent Relative Strength Index (RSI) readings are. RSI is a widely watched momentum indicator that looks to identify areas where an asset’s price is potentially overbought or oversold.

Within the last two weeks, BTC has registered three of the 10 highest RSI readings dating to 2019. Its reading of 89.3 on Jan. 14 ranked third, with its readings on Jan. 16 and 17 ranking eighth and ninth, respectively.

ETH’s RSI readings have been more muted, reaching the 12th and 15th highest slots since 2019.

The momentum is likely to wane, however. To an extent, we’ve already seen that with both BTC and ETH’s RSI falling to current levels of 78 and 73, respectively. However, a second look at past data shows that we’re still swimming in relatively uncharted waters.

Since 2019, Bitcoin’s RSI has hovered between 78 and 79 just 10 times out of approximately 1,500 trading days. ETH’s reading has occurred 18 times over the same time period.

Historic behavior of the two assets differs, despite their relatively tight pricing relationships with each other.

The average seven- and 30-day returns for BTC after reaching its current RSI level have historically been 7% and 15%, respectively.

Ether’s seven- and 30-day historic returns at current RSI levels have been relatively mild, at just -2% and 1.6%, over the identical time frame.