Bitcoin bulls are back, but beware the risks

Bitcoin's BTC= latest rally is getting attention even though big swings are not unusual in crypto markets.

The world's biggest cryptocurrency has surged around 20% in just three days, topping the $80,000 mark for the first time in more than three months, and further distancing itself from the multi-year lows at which it was languishing in July.

According to SentimenTrader, the move — which is much stronger than its previous surge this year — is flashing signals that have historically pointed to further gains.

One reason for the optimism is that Bitcoin's trading pattern echoes periods that were followed by strong returns.

"After similar short-term price analogues, like now, Bitcoin displayed excellent returns and win rates across all time horizons, boasting a 90% win rate over a one-month horizon," the research firm writes in a report this week.

Momentum indicators are back up the bullish case.

Bitcoin's Relative Strength Index (RSI) has broken above the closely watched 70 level, a sign of strong buying pressure. SentimenTrader's analysis found that similar RSI breakouts have historically produced a 94% win rate over the following month.

Market sentiment is also providing support. The Crypto Fear and Greed Index remains above 50, a level the research firm describes as a structural tailwind, while fund flows are trending higher, with a steady upward rise over the last week.

Still, history also offers a warning.

Bitcoin remains one of the most volatile assets in global markets, and previous momentum signals have sometimes been followed by drawdowns of more than 20%.

"Traders must temper their expectations and manage risk meticulously".