Overbought: Will Bitcoin’s rally above $60,000 entail this ‘pause’
Now that the apex cryptocurrency, Bitcoin, surpassed the much resisted $60,000 mark on the back of a BTC ETF approval, an atmosphere of bullishness has returned to the market. Even as the asset is now eyeing a fresh all-time- high, threats of a pullback remain afloat within investor circles.
Hedge fund manager Mark Yusko recently expressed his skepticism regarding the sustainability of the current price rally. While he believes that the sharp price action will result in many investors indulging in profit-taking activities, he “also wouldn’t be surprised of a little consolidation.”
This is because the coin has rallied almost 40% in the past couple of weeks, which could indicate that it is “overbought.” He said,
“We’ve been bullish on cryptocurrency, and Bitcoin in particular, for a long time… A pause that refreshes given how overbought we are right now wouldn’t surprise me. There is some risk of the buy the rumor, sell the news.”
This would make any profit-taking a temporary phenomenon, he said, adding that the digital asset will nevertheless reach $250,000 within the next five years, surpassing the market cap of gold. The asset manager attributed this to the “classic demand and supply” scenario that Bitcoin’s finite nature creates, while also being “a perfect store of value.”
His reasoning is also based on a long-term deflation prediction, which Yusko cited will be caused by an aging population, increasing debt, and the impact of massive virus aid measures. He stated,
“The likelihood of us getting a full-on inflationary period, I think, is really, really low. Normal is that we are in a deflationary death spiral. It’s been going on for a couple of decades.”
Bitcoin’s recent performance has catapulted it to the position of the world’s eighth most valuable asset, with a market cap of $1.16 trillion at press time. While the top digital asset is a long way from overtaking gold, which many investors including Yusko believe it will, its immediate opponent in this race is silver, which Bitcoin is slowly inching in on.
According to data on companiesmarketcap.com, the cryptocurrency still needs an almost 15% price appreciation to achieve this, and a sustained rally could materialize this milestone.
However, Bitcoin’s entry into the overbought zone could prove to be a deterrent to this. Substantiating Yusko’s analysis, BTC’s relative strength index (RSI) also positioned the coin in an overbought zone. Assets that are considered overbought have a higher possibility of witnessing a trend reversal, pointing towards an impending correction in Bitcoin’s price.
This pullback was also predicted recently by Katie Stockton of Fairlead Strategies, who last week advised her clients to hold off on buying the top cryptocurrency for now. While Stockton believes the digital asset will continue its long-term uptrend, it will first experience a two-week period of sideways consolidation that could include a 16% pullback, which would be “temporary”.
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Author: Anjali Jain