What does it mean that Bitcoin is extremely oversold?

Bitcoin is extremely oversold, a technical analysis indicator shows, as bond yields surge, weighing on risk assets including cryptocurrencies.

Bitcoin’s 14-day relative strength index (RSI) has fallen well below 30, indicating oversold conditions. The indicator has dropped to its lowest level since the March 2020 crash.

The 14-day RSI has fallen to its lowest level since March 2020. (TradingView/CoinDesk)

The RSI is a momentum indicator ranging between 0 and 100 that shows an asset's recent price movement relative to its average price movement over a specific period (usually 14 days).

A reading below 30 reflects oversold conditions, meaning prices have fallen too quickly relative to their recent averages. Meanwhile, a reading above 70 indicates overbought conditions.

One of the mistakes that the crypto community and most novice traders on X (formerly Twitter) make is viewing oversold and overbought readings as precursors to impending bullish and bearish reversals.

But that’s not the case. An oversold RSI reading means that prices are falling too quickly – that’s it, while an overbought reading suggests that prices are rising too quickly.

If anything, the RSI’s latest reading below 30, or oversold, suggests that bearish momentum is strengthening. As the old saying goes, an indicator may remain oversold longer than dip buyers remain solvent.

Alex Kuptsikevich, senior market analyst at FxPro, said Bitcoin’s price trend has turned bearish.

“Bitcoin closed last week significantly below its 200-week and 200-day moving averages, signaling a turn to the bearish trend. From current levels near $26,000, the next area of ​​decline appears to be the last pivot area at $24,700,” Kuptsikevich said in an email.

The 14-day RSI has fallen to its lowest level since March 2020. (TradingView/CoinDesk)

At press time, Bitcoin is trading at $26,000. Prices fell more than 10% last week, and the yield on 10-year U.S. inflation-indexed securities rose to almost 2%, the highest level since 2009.