Even as Bitcoin (BTCUSD) enthusiasts celebrate the setting of another price record, technical analysts are sounding the alarm on the cryptocurrency's current rally. Miller Tabak Chief Strategist Matt Maley told CNBC that Bitcoin's upward trend could hit a wall around the New Year. According to Maley, the cryptocurrency is in an overbought state, meaning that it has too much liquidity in its markets, and this could trigger a selloff by investors interested in booking their profits.
The analysts referenced the cryptocurrency's high relative strength indicator (RSI), a technical analysis indicator that measures overbought or oversold conditions. A stock with an RSI of over 70 is in an overbought state. During the cryptocurrency's price run-up in 2017, its high RSI was followed by significant declines.
- Bitcoin price could witness a decline of between 25% and 30% around the New Year, according to a technical analyst.
- Bitcoin is still a good asset for the long term.
"It's [the RSI is] above 88 [as of Thursday]. That's not quite up to the 90 level that it reached twice in 2017, but those were followed by declines of 36% and 64%," Maley said. He added that the pandemic's ending will result in fewer traders and less money. According to the analyst, "… maybe that liquidity becomes a little less plentiful, this stock could get clobbered like it has many other times in the past."
That clobbering could be substantial and result in steep price declines, amounting to between 25% and 30% of the cryptocurrency's current price, said Maley. "Again, I don't think that really starts until early in the new year, but I do think it's coming soon ... based on this overbought condition and the froth that we've seen in this asset class in the last week or two," he said.
Another analyst, Tom DeMark, said that Bitcoin price would suffer from "pending upside trend exhaustion" that would begin a downturn in its price. DeMark also cited previous instances when similar movement has occurred. "The prior instances in which this long-term model has spoken include the precise Dec. 18, 2017, high, the precise low day Dec. 14, 2018, and then the precise June 26, 2019, high day."
Bitcoin Is Still a Buy
Bitcoin prices have set new records recently, skyrocketing from $20,000 to $23,000 in a single day. Those figures have brought back memories of the cryptocurrency's 2017 rally, when it traversed the distance between $10,000 and $20,000 in less than two weeks on the back of demand from retail investors in thinly traded markets. That swinging performance was followed by a prolonged price slump that lasted more than two years.
Unlike the 2017 price jump, however, this year's rally has been measured in comparison. Institutional investors, who were dismissive of the cryptocurrency in 2017, have also sounded out encouraging words about its potential to become a "global asset" this time. Some have also begun offering services or amassing a stash of the cryptocurrency as a hedge against uncertain economic conditions and inflation.
All of this means that the Bitcoin market in 2020 is more mature as compared to the one in 2017. To that end, Maley said that he believed in the cryptocurrency for the long term. "I think on a short-term basis it [the rally] could continue a little bit longer, and I'm very bullish on it on a very long-term basis," he said.