Why I'm Not Worried About the Overbought Bitcoin Boom

Editor's note: Cryptocurrencies have staged a huge breakout recently. So today, we're turning to our in-house crypto analyst at Stansberry Research, Eric Wade. As he explains in this piece adapted from a recent update for Crypto Capital subscribers – an overheated rally isn't necessarily a threat to bitcoin. Instead, investors in this space should prepare to face a different obstacle altogether...

Bitcoin has continued its rally. And if you follow the cryptocurrency markets, you might be feeling like the boom is due for a pullback...

According to the relative strength index ("RSI"), that may be true. This indicator neared all-time-high readings recently. But this isn't the fear investors should focus on today.

As I'll explain, the RSI often sends mixed signals when it comes to bitcoin. That makes it an unreliable measure in this market.

Instead, you should be worrying about a different risk entirely...

It's a concern for all types of investments – but it's especially important for bitcoin right now. And it matters a lot more than an individual trading signal.

So, let's jump in...

The RSI is useful for many kinds of trading. It can tell us when an asset is gearing up for a reversal.

When an asset is "oversold," it means a rally is likely. That's because by then, no one is left to sell. On the other hand, an "overbought" reading shows that too many folks have already bought in... And that usually means prices have nowhere to go but down.

But for bitcoin investors, the RSI might send the most mixed messages of any indicator out there.

Bitcoin has strayed into overbought levels before – and many times, prices still went up. Just think back to when bitcoin rallied from below $16,000 in November 2022 to more than $23,000 in January 2023. The RSI had surged to more than 90 at that time, which is very high.

Or consider August 2023, when the RSI made a "low" of 18. Bitcoin was trading for around $26,100 then – about $3,000 higher than when the RSI had peaked.

From there, the RSI went on to peak again in October 2023 when bitcoin rallied to more than $34,000... and then again in December when bitcoin rallied to $43,000. This year, the RSI peaked in February when bitcoin hit $52,000.

You get the picture... Listening to the RSI would have kept you from the gains that followed when it soared to those levels.

Not only that, but the RSI is best used as a trading tool for short-term market moves...

Investing is different from trading. If you're looking for short-term gains, then moving your money based on short-term signals makes sense.

If you're looking at bitcoin as a long-term investment, though – if you're buying to hold for a long time or are continuously adding more every week – then an "overbought" signal won't make as much of a difference to you.

So, yes... Bitcoin is overbought today. But it's also true that if cryptocurrency values continue to soar over time, holding it stands to make you a considerable amount of money.

That's why I view bitcoin as a long-term investment.

The latest bitcoin boom is the one we've been waiting for. That means we should expect significant gains... But we should also expect volatility. The recent RSI reading supports this.

What I'm more concerned about during this rally is a different risk entirely. And if you're a long-term bitcoin investor, you need to be ready for it...

You need to psychologically prepare yourself for the fear of missing out.

This fear can take many forms. First, you may start to resent the cash you keep on hand. But it's important to have reserves of "dry powder"...

Bitcoin investors went from "buying the dip" to an all-out boom pretty darn quickly. But even in a rally, bitcoin can go through 30% to 40% sell-offs. So, we may have more dips to buy from here – and that dry powder will be useful.

Second, the fear of missing out can also lead you to buy something that's too hot...

You might be tempted to overpay for coins. Overpaying can work itself out in a bull rally... But it can also make you feel downright stupid if you buy something and then a sell-off leads to better prices.

Fast-moving prices can easily lead you to buy or sell based on emotion. And that's a big mistake.

So, keep emotions out of your investment plan – and don't let the RSI shake you out of bitcoin today...

Hold on for the long term, and enjoy the rally. Bitcoin can easily soar to all-time highs from here.

Good investing,

Eric Wade

Editor's note: April 19 could be the biggest day in crypto history. Bitcoin is scheduled for a "reboot" that only happens once every four years. Eric sat down yesterday to discuss the details of this event and why he believes it will spark a crypto mania. According to history, this "reboot" could send the best altcoins soaring by hundreds of percent. But this opportunity won't last forever... You can watch a replay of Eric's conversation right here.

Further Reading

Eleven bitcoin exchange-traded funds were approved in January. The positive reception helped build momentum behind the crypto market. Now, three key measures indicate that upward momentum will likely continue... Read more here.

It's no secret that 2023 was a rough year for cryptos. But since then, the sector has massively recovered. And based on several factors, this rally is just heating up. In fact, one major catalyst is about to take place... Learn more here.