Is BTC still in an uptrend?
Will bulls or bears prevail after BTC’s mild decline during crypto’s year-end rally? [Westend61 via Getty Images]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Bitcoin’s rally took a breather. After seven straight weeks of gains, BTC saw a price pullback to begin the week.
What is the “relative strength index”? Learn the basics behind a trading indicator commonly used by the pros.
This week in numbers. The percent of global assets represented on blockchains, the amount of ETH that’s been “burned” since October, and more stats to know.
MARKET UPDATE
Bitcoin sheds 7% as crypto’s 2023 rally takes a breather
Crypto prices — powered by optimism over the projected near-term arrival of spot BTC ETFs from finance giants including BlackRock — have trended upward for much of 2023.
But this week, traders got a reminder that price action goes both ways, with a broad selloff that saw half of the top 10 coins by market cap fall by more than 5%.
By Wednesday, BTC and ETH prices began to recover after U.S. Federal Reserve Chair Jerome Powell announced that the central bank would again leave interest rates unchanged, and signaled the potential for several rate cuts in 2024.
Here’s what happened, and what might happen next.
Bitcoin declined after 7 weeks of price increases.
Bitcoin’s price fell more than 7% to start the week, dropping from around $44,000 on Sunday to $40,150 on Monday afternoon, before recovering to around $42,000 by Wednesday. The drop, which came after seven straight weeks of gains, represented bitcoin’s worst single day since August.
Many market analysts, however, expected the decline to be short lived.
That’s because Monday’s drop wasn’t largely driven by long-term holders selling. A much bigger factor was short-term traders who had used leverage (or borrowed money) to bet that prices would continue rising, and were forced to sell their positions as bitcoin’s price fell. More than $500 million of leveraged positions were liquidated, which quickly created significant downward pressure on bitcoin’s price.
This week’s dip might not even be bad news for typical BTC hodlers. Some analysts say that the unwinding of leverage is a healthy sign, because it allows for more sustainable price action moving forward.
“Corrections shake out ‘weak hands’ and leverage, allowing for a stronger foundation for eventual moves higher,” said Will Clemente, founder of crypto research firm Reflexivity Research. “Bitcoin’s volatility is a feature, not a bug.”
BTC “dominance” might be a clue to what happens next.
Bitcoin’s decline in price coincided with a decline in its dominance, or BTC’s share of the total crypto market. Bitcoin dominance is considered a key crypto indicator. Historically, after BTC dominance peaks, altcoins begin to rally.
Indeed, after BTC’s dominance hit a two-year high of 55.3% on December 5 and began ticking downward, the market cap for altcoins rose to as much as $750 billion — around $100 billion above November levels.
A decline in bitcoin dominance doesn’t mean BTC prices will keep going down, though. Instead, it could indicate that some traders have been taking profits on their 2023 gains and pivoting into altcoins.
The bottom line…
It’s rare that any asset class climbs without pause — after all, whenever prices go up, some traders are likely to sell.
And there are reasons to be optimistic about where markets might head in the coming weeks. In addition to this week’s data showing inflation has continued to cool and the Fed suggesting interest rate cuts could come in 2024, a flurry of activity from spot bitcoin ETF applicants may be teeing up a Securities and Exchange Commission approval that many experts believe could happen by January.
ANALYZE THIS
How the “relative strength index” can help inform your trades
With crypto prices on the move, you might be giving more thought than usual to how you want to trade.
There are lots of ways to go about it, from simple strategies like dollar-cost averaging (in which you buy a fixed amount of crypto every week or month) to more active ones like digging into technical analysis to gain as much information as you can about market movements.
If you’re curious about the latter option, we’re compiling some guides about the major charts and indicators you can use to inform your moves. In our second installment (following last week’s guide to candlestick charts), we’re covering the relative strength index (RSI).
Here’s what you need to know.
What is RSI?
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One of the most common indicators used in technical analysis is the RSI, which is a quick way to gain insight into an asset’s “momentum” — or how intensely the market has wanted to buy or sell over a period of time.
In the Coinbase app or on Coinbase.com, you can check out RSI charts by exploring the “Indicators” drop down menu at the top of a price chart in Coinbase Advanced.
How is the RSI calculated?
As you can see in the example above, the RSI — which is typically paired with a candlestick price chart — fluctuates between 0 and 100.
Assuming the range is set to 10 days, an asset’s relative strength is calculated by dividing the average gains by the average losses over the past 10 days. If that sounds complicated, don’t worry — the chart does the calculations for you.
What are some things traders look for in the RSI? The most common signals traders look for is when the RSI jumps above 70 or falls below 30.
When RSI is above 70, it suggests that an asset is “overbought” — which means its upward price momentum is slowing, and could be poised to reverse.
When RSI is below 30 it suggests an asset is “oversold” — which means its downward momentum is slowing, and could be poised to reverse.
It’s important to know that overbought doesn’t necessarily mean it’s time to sell and oversold doesn't necessarily mean it's time to buy. All it means is that according to this one index, an asset’s momentum up or down might be slowing — and might even be due for a reversal.
Bitcoin, for example, has historically maintained RSI levels well into “overbought” territory for months at a time during uptrends, and some traders actually look at overbought RSI numbers on BTC as a sign that its upward momentum will continue.
The bottom line…
Understanding what the RSI might mean in the context of a particular asset or within certain market conditions is one of many ways professional traders can identify trends and potential opportunities.
But always remember: professional traders rarely ever rely on one indicator, and past performance isn’t indicative of future results. If you’re not sure what trading strategy is right for you, check with a trusted professional advisor.
NUMBERS TO KNOW
56,000
Amount of ETH (worth more than $122 million) that’s been removed from circulation since October 31. Ahead of Ethereum’s “Merge” in 2022, a new inflation-battling mechanism was created to “burn” ETH as transactions rise. For much of 2023, low transaction volumes meant that more new ETH was created than burned, but a recent surge in trades has reversed that trend.
100
Number of NFT digital collectibles that world soccer governing body FIFA is releasing on the Polygon blockchain — which offer holders a chance to “secure” tickets to the 2026 World Cup Final, which will be held in the U.S.
52%
Price increase of layer-one token Avalanche over the week ending on Wednesday, leading all major altcoins. During Monday’s brief selloff, AVAX was the only coin in the Top 10 to remain in the green.
0.25%
Estimated share of global assets represented on blockchains. The tokenizing of real-world assets is expected to be among the leading blockchain use cases in coming years, and Coinbase recently announced an effort to work with firms on tokenizing assets on Base, a layer-2 blockchain incubated by the company.
TOKEN TRIVIA
What is a good way to improve your online security?
A
Use strong, unique passwords
B
Turn on 2-factor authentication
C
Maintain a low profile
D
All of the above
Find the answer below.
Trivia Answer
D
All of the above
