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After a mad rally to a new high this week, Bitcoin was ready for a small pause.
The digital asset's advance was so strong, the coin entered into "overbought" territory, with its 14-day relative strength index (RSI) clocking in at 71. Assets are considered overbought if the RSI crosses above 70 and oversold if it falls below 30. Thursday saw it falling as much as 2.9% to trade at about $64,098, just a day after it reached nearly $67,000 for the first time.
"Not only is it overbought on a short-term basis, but sentiment is getting quite bullish as well," said Matt Maley, chief market strategist for Miller Tabak + Co. "Bullish sentiment among futures traders on Bitcoin reached 92% this week. That's very high, so it needs to take a breather to work off these short-term conditions," he said referring to data from the Daily Sentiment Index.
Technicians are looking at other signals as well. Bitcoin broke through the upper band of the Trading Envelope indicator -- a technical measure built around moving price averages -- suggesting that it may have jumped too far, too fast.
The largest digital currency touched a high of around $66,900 Wednesday, galvanized by the successful launch of the first U.S. Bitcoin futures exchange-traded fund -- the second-busiest ETF debut on record and another step in its evolution. The cryptocurrency has rallied some 120% in 2021.
Though crypto assets tend to trade in tandem, not everything sold off alongside Bitcoin on Thursday. Ether, the second-largest digital asset, rose as much as 6.4% to about $4,372. Ether has outperformed Bitcoin so far this year.
Market-watchers have pointed out that Bitcoin tends to sell off following seminal moments in its history. Noelle Acheson, head of market insights at Genesis Global Trading Inc. noted that the coin declined after BTC futures were listed on the Chicago Mercantile Exchange, and repeated that pattern after Coinbase Global Inc. listed on Nasdaq earlier this year.
"This asset tends to peak around flashy events," wrote Nicholas Colas, co-founder of DataTrek Research. "Our recommended approach is to scale in slowly, over a period of months or years, rather than chasing it when it becomes frothy," he said, adding, "Be careful."
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