Smart traders use a lot of tools to analyze the markets. The Relative Strength Index (RSI) is one of the most popular and detects trend strength and momentum extremes.
Right now, the RSI is indicating that bitcoin is oversold, suggesting that the recent sell-off has been too intense and that prices could see a relief bounce. But don’t bet everything: the oversold reading does not promise a full-fledged bull run.
Mechanical engineer and renowned technical analyst J. Welles Wilder Jr invented the RSI in 1978, revealing the formula and interpretation in his book “New Concepts in Technical Trading Systems.”
The indicator measures price gains and losses over a standard 14-day period, producing a value ranging between 0 and 100. A reading below 30 indicates that price losses have exceeded gains too aggressively over the past 14 days, a sign of strong bearish momentum.
Wilder and RSI supporters call it oversold: the market has fallen too far, too quickly relative to recent norms, setting it up for a mean reversion or bounce.
The market often bounces when the RSI shows oversold conditions, although a reading below 30 alone only indicates what has happened recently.
The logic behind these oversold bounces is simple: traders’ interpretation makes it a self-fulfilling prophecy, as enough desks and algorithms accumulate into oversold bounces, causing the bounce to occur.
This is especially true when an oversold reading appears while the asset is trading near key support – a price level where buyers previously intervened to stop the decline at that time.
That is precisely the current situation with bitcoin.
The chart shows daily BTC price swings in candlestick format, with the 14-day RSI in the bottom panel. A candlestick chart visually captures the price action of an asset over a given period, such as a day or hour, and displays the open, close, high, and low prices in a single compact form that resembles the candlesticks we use in everyday life.
The RSI has fallen below 30, indicating oversold conditions, while bitcoin is trading near the $73,000 to $75,000 support zone. The April 2025 dip faded in this range, and the early 2024 bull market stalled in the same range. This cements it as a fundamental buying and selling battleground for the last two years.
Therefore, the self-fulfilling prophecy could come true and cause a notable price rebound.
That said, a bounce is not promised, and a potential bounce does not necessarily indicate the start of a new bull run. Like any other indicator, the RSI can produce false signals.
Furthermore, context matters. Historically, oversold readings have only yielded slight bounces amid broader downtrends, such as in 2022. The last one, in November, marked the beginning of a multi-week consolidation that eventually gave way to last month’s deeper sell-off.
