If we look through the past, from November to December in 2017, the price of the world’s dominant cryptocurrency, Bitcoin, experienced a parabolic uptrend to a lifetime high at $20,000.
According to analysts, there are three reasons BTC might see a similar trend in the following months, which I will explore in the next article:
1) The post-halving cycle is coming into effect.
2) The relative strength index (RSI) shows room for a bigger rally.
3) The rally is not overheated, at least in the derivatives market.
The creator of the S2F (Stock of Flow) indicator shared a long-term RSI chart of BTC. What is RSI? The relative strength index gauges the size of recent price moves to assess overbought or oversold conditions in the price of an asset. According to it, Bitcoin is still at a neutral level.
BTC has rallied to $13,600 from $10,500 for one month. However, RSI reveals there is room for more upside.
The RSI Bitcoin exceeded 95 points in December 2017. When the RSI surpassed 75 points, traders start to consider the asset to be overbought. Now, the long-term RSI of Bitcoin shows it is below 70 points.
In 2017, one of the primary narratives around the gain of dominant cryptocurrency was its halving in 2016. A block reward halving, which happens about every four years, causes the rate at which Bitcoin is produced by miners to fall by half.
Bitcoin’s slower production leads to an overall decline in Bitcoin inflows into exchanges, leading the supply to fall.
Significantly, the latest halving happened in May 2020, and in 2017, Bitcoin started to rally months after the activation of the halving.
Bitcoin would reach its peak in Q2 of 2021
During the past five days, Bitcoin’s funding rate has stayed negative on significant exchanges, especially on Binance Futures. This shows that the bulk of the futures market has been shorting Bitcoin.
Significantly, a rally is overheated when the futures funding rate starts to rise beyond the average rate (0.01%). Additionally, Bitcoin’s funding rate has been floating between -0.01% and 0.01% in recent weeks. This shows a relatively neutral derivatives market.
Since there is little resistance among $15,000 and $20,000, this increases the probability of reaching a new record-high in the following months.
If the same post-halving cycle as 2017 follows, Bitcoin would theoretically reach its peak in the Q2 of 2021. If that is the case, there is a chance that Bitcoin could far surpass $20,000.