The Relative Strength Index (RSI) is a crucial momentum indicator that measures the velocity and magnitude of Bitcoin's price movements. For Bitcoin analysis, we specifically use monthly RSI rather than traditional daily calculations to filter out the extreme volatility that characterizes cryptocurrency markets. This approach provides more reliable signals for strategic decision-making and is one of the eight key indicators in our Bitcoin Barometer.
By focusing on monthly timeframes, RSI becomes particularly effective at identifying major trend changes and genuine market cycle shifts, rather than getting caught up in Bitcoin's notorious daily price swings.
How the RSI is Calculated
- Average Price Movements: Analyze recent price changes over a set period, typically 14 days, to calculate gains and losses.
- Calculate Average Gains and Losses: Determine the average gain and loss over this period, smoothing daily fluctuations.
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Compute the RSI: Use the formula
RSI = 100 - (100 / (1 + RS)), whereRSis the average gain divided by the average loss.
Values range from 0 to 100. For Bitcoin's monthly RSI, we use specific thresholds: values above 70 indicate emerging overbought conditions, while readings above 85 signal extreme overbought territory that has historically preceded major corrections.
Why Monthly RSI for Bitcoin Analysis
Monthly RSI proves superior to daily RSI for Bitcoin analysis because it filters out daily noise and focuses on major trend changes. Bitcoin's notorious volatility makes daily RSI less reliable, generating numerous false signals as prices can swing 10-20% in single days. Monthly RSI, conversely, better identifies genuine market cycle shifts and long-term momentum changes crucial for strategic investment decisions.
Critical RSI Threshold Analysis
🔴 Extreme Danger: Above 85
Monthly RSI above 85 indicates historically extreme overbought conditions where Bitcoin has sustained prolonged upward momentum. These levels have consistently preceded major corrections throughout Bitcoin's history as buying momentum becomes unsustainable and profit-taking pressure increases. Readings above 85 represent high-risk conditions requiring increased caution.
🟡 Caution Zone: 70-85
RSI between 70-85 indicates overbought conditions requiring caution, but markets can continue rising. Strong bull markets can sustain RSI above 70 for months before corrections occur. This represents elevated risk compared to balanced conditions but not immediate reversal signals.
🟢 Balanced to Oversold: Below 70
RSI under 70 suggests balanced to oversold conditions. During bear markets, Bitcoin's monthly RSI can stay below 30 for extended periods, sometimes reaching extreme lows around 20-25. These deeply oversold conditions historically precede major recoveries, though timing can vary significantly.
Extended Market Conditions & RSI Behavior
RSI During Strong Bull Markets
Bitcoin can continue rising even when RSI exceeds 70, as powerful bull markets generate sustained momentum. However, the key distinction lies between RSI 70 (overbought but manageable) versus RSI 85 (extreme conditions with high correction probability). Markets above 85 historically show significantly higher risks of major corrections.
Bear Market RSI Extremes
During severe bear markets, Bitcoin's monthly RSI can remain below 30 for months, sometimes reaching extreme lows around 20-25. These oversold conditions often mark periods of maximum pessimism and historically precede major recoveries, though the exact timing varies based on broader market catalysts and adoption cycles.
Practical Application for Different Investor Types
Beginner RSI Interpretation
Beginners should focus on major RSI thresholds rather than getting caught up in daily fluctuations:
- Below 30: Potential undervaluation, but patience required as oversold can persist
- 30-70: Balanced conditions with moderate risk levels
- Above 70: Increasing caution advised, elevated risk conditions
- Above 85: Historically high-risk territory requiring careful risk management
Most importantly, always combine RSI readings with other indicators like MVRV-Z Score and Fear & Greed Index for comprehensive analysis. RSI alone should never drive major investment decisions - it's most powerful when confirming signals from multiple technical and fundamental metrics.