Bitcoin Technical Analysis: RSI Divergence Signals Potential Recovery Phase

Bitcoin price extends its recovery on Tuesday after correcting by nearly 5% in the previous week.

On-chain data reveals long liquidations exceeded shorts by about $7 million, indicating potential market structure shifts.

Technical indicators show a bullish RSI divergence formation in the 4-hour chart, a pattern historically associated with trend reversal scenarios.

Bitcoin (BTC) price is continuing its recovery trajectory, trading above $110,000 as of Tuesday after experiencing a 5% retracement last week. On-chain metrics have identified an uncommon market condition where long liquidations have surpassed short liquidations by approximately $7 million. Meanwhile, technical analysis reveals a bullish Relative Strength Index (RSI) divergence pattern on the BTC 4-hour timeframe, suggesting the flagship cryptocurrency may be entering a reversal zone or preparing for a near-term rally.

Market Structure Analysis: On-Chain Metrics Signal Potential Reversal

Bitcoin price displays early recovery signs this week, breaking a three-week correction pattern from its all-time high of $124,474. The 14% drawdown from peak to August’s low of $110,680 triggered substantial position liquidations across major trading venues.

Cumulative Liquidations data from a major trading platform reveals an important market structure development - long liquidations have exceeded short liquidations by approximately $7 million during this sustained uptrend. This anomaly highlights the excessive bullish positioning that previously dominated market sentiment.

The significant clearance of overleveraged long positions suggests the market has experienced the necessary cooling effect, potentially creating more balanced conditions for a sustainable recovery. Historical price action shows that such liquidation events often precede structural market shifts.

Additionally, Bitcoin price currently hovers near the Short-Term Holder (STH) Realized Price of approximately $108,900. This metric holds particular significance in bull market cycles, as BTC typically maintains price action above the STH Realized Price when market structure remains constructive, indicating short-term participants maintain profitable positions.

The Crypto Fear and Greed Index registered near four-month lows on Saturday, reflecting extreme fear following recent price corrections. By Tuesday, this sentiment gauge had recovered to 49, indicating a neutral market stance and suggesting a potential reduction in selling pressure.

BTC Price Action Awaits Critical Economic Data Releases

Bitcoin traders are now focusing on significant U.S. macroeconomic indicators scheduled for release at the start of the month, beginning with Tuesday’s ISM Manufacturing PMI. This week’s economic calendar features several high-impact releases: the JOLTS Job Openings report on Wednesday, followed by Thursday’s ADP employment figures and ISM Services PMI, culminating with Friday’s Nonfarm Payrolls (NFP) report.

These economic indicators will provide essential insights regarding the Federal Reserve’s (Fed) potential rate-cut trajectory and could significantly influence market direction for risk assets including Bitcoin.

Technical Analysis: RSI Divergence Pattern Signals Potential Strength

The 4-hour Bitcoin chart displays a clear bullish RSI divergence formation - a powerful technical pattern that occurs when price forms a lower low while the momentum indicator (RSI) prints a higher low. This technical non-confirmation between price and momentum often precedes trend reversals following correction phases.

Bitcoin has recovered modestly on Tuesday, testing its 50-period Exponential Moving Average (EMA) on the 4-hour timeframe at $110,424. A successful close above this technical reference point could accelerate recovery momentum toward the August 22 high at $117,429.

On the daily timeframe, BTC’s recovery is approaching the critical 100-day EMA at $110,697. A daily close above this level would strengthen the reversal case and potentially open a path toward the daily resistance zone near $116,000.

The daily RSI currently reads 43 and shows upward momentum toward its midpoint at 50, indicating diminishing bearish pressure in the market structure.

However, should Bitcoin fail to establish support above the 100-day EMA at $110,697, the correction could extend toward the next daily support level at $105,573.

Cryptocurrency Technical Terminology Explained

What is circulating supply?

The developer or creator of each cryptocurrency determines the total token supply that can be minted or issued. Only a certain number of these assets can be created through mining, staking or other consensus mechanisms as defined by the blockchain’s protocol. Circulating supply can decrease through token burning mechanisms or accidental transfers to incompatible blockchain addresses.

What is market capitalization?

Market capitalization represents the total value of a cryptocurrency’s circulating supply, calculated by multiplying the current market price by the number of tokens in circulation.

What is trading volume?

Trading volume measures the total quantity of tokens exchanged between buyers and sellers within a specified timeframe (typically 24 hours). This metric aggregates transaction data from both centralized exchanges and decentralized protocols to gauge market activity. Increasing volume generally indicates heightened interest in an asset as more market participants engage in trading.

What is the funding rate?

Funding rates are a mechanism designed to align perpetual contract prices with spot market rates. This system ensures future prices and index prices converge through periodic payments between traders. When funding rates are positive, perpetual contract prices exceed the mark price, requiring bullish long position holders to compensate traders in short positions. Conversely, negative funding rates occur when perpetual prices fall below the mark price, resulting in payments from short position holders to traders with long positions.