Bitcoin analysis: where is the volatility?

Last Updated: 7 August 2022

Bitcoin has not made any significant upward or downward moves in the last 24 hours. But if we zoom out, we see an upward trend in the RSI. What does this mean?

At the time of writing, the bitcoin price is just under 22,800. This is hardly different from yesterday. Boring… where has the volatility (movement of the price) gone for which bitcoin is so famous?

Bitcoin Volatility Declines

Below is bitcoin’s volatility index, which measures how much the price of bitcoin fluctuates on a specific day compared to the average price over the past 30 days. The higher the number, the more volatile bitcoin is.

Especially in the early days, bitcoin scored high. There was less volume, so every large purchase or sale affected the price. As more money enters the bitcoin market, volatility decreases. It is also very visible that there is a clear decrease above.

The chart below looks at the past 30 days. After the heady period of May and June (still visible in July as it looks at the average of the past 30 days), the volatility index is 1.23%. Again: boring.

RSI bitcoin moving up

Even though the volatility index is low, the RSI is actually showing an upward trend. The RSI is the black line at the bottom of the chart and moves in the purple band. The abbreviation stands for Relative Strength Index and is a proxy for when something is oversold or overbought.

According to theory, if the RSI drops below 30, then this means bitcoin is oversold. This could mean that bitcoin is being dumped too much, and the price could move upwards.
If the RSI is above 70, then bitcoin is overbought. Bitcoin is being overbought, and the price may fall from here.

Please note that this is not foolproof. The price is not so volatile now, so that increases the reliability of the RSI, but in times of rapid rises/declines, the 30/70 rule is a bit looser to interpret.

Trend of bitcoin

The RSI has been moving up since mid-July but does not yet indicate that bitcoin is overbought. If volatility remains this low, the bitcoin price may slowly creep further up. But when it reaches 70, it will be time to keep an eye on the price.

In other words, according to the theory, an RSI value of 70 can be interpreted as bitcoin being overvalued. It could indicate an impending trend reversal or correction in the price.

No panic from bitcoin RSI

Bitcoin has had a streak of 7 consecutive red days over the past 10 days or, in other words, the price fell for 7 days in a row. These were not steep declines but only a low percentage each day.

Therefore, the market did not panic. And this is confirmed by the upward trend of the RSI. But also because the lows (orange circles) are moving a little higher.

The indicators used are not sacred. There is so much more going on in the world which could affect the bitcoin price. Think, for example, of the ever stronger dollar, the correlation with equities, and the fear of recession.

Author

  • Steven Gray is a journalist with a heart for crypto. He filters the wide range of news and ensures that it reaches the public in a comprehensible way. He often does this with the support of technical analysis.

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