Bitcoin's $120k Target: RSI Divergence as a Trend Continuation Signal

Bitcoin's price trajectory in early 2026 has sparked renewed interest in its potential to surpass $120,000, driven by technical indicators such as RSI (Relative Strength Index) divergence. This analysis explores how RSI divergence, historically a precursor to significant price movements, aligns with current market conditions to support a bullish case for Bitcoin.

RSI Divergence: A Historical Indicator of Trend Continuation

RSI divergence occurs when price action and the RSI indicator move in opposite directions, often signaling a potential reversal or continuation of trends. In March 2020, Bitcoin bottomed near $3,800 amid a bullish RSI divergence-price formed lower lows while RSI created higher lows. This divergence preceded a historic bull run, propelling Bitcoin to over $60,000 by 2021. Similarly, in early 2026, Bitcoin's RSI has climbed above the 50 midpoint after months of bearish pressure, with a hidden bullish divergence forming on hourly charts. Here, RSI shows lower lows while price forms higher lows, a classic sign of a potential bottom.

However, RSI divergence is not infallible. During the 2018 bear market, multiple bullish divergences failed to reverse the downtrend, underscoring the need for confirmation from other indicators. This probabilistic nature means RSI signals must be contextualized with broader market structure and fundamentals.

Current Market Conditions: A Confluence of Bullish Signals

Bitcoin's price has recently broken above critical moving averages, including the 50-period and 100-period, reinforcing a bullish bias. The MACD has confirmed a bullish crossover, while the total crypto market cap has surged to $3.32 trillion, reflecting renewed institutional and retail confidence. Additionally, ETF inflows and elevated open interest in Bitcoin futures suggest sustained demand.

Yet caution is warranted. The RSI has entered overbought territory at 71.35, historically signaling potential corrections. The Supertrend indicator remains bearish, and a break below $97,486.82 could trigger a short-term pullback. These risks highlight the importance of monitoring sentiment indices and regulatory developments, which could introduce volatility.

The Path to $120k: Technical and Fundamental Drivers

Historical patterns and current technical setups suggest Bitcoin could test $120,000. A key resistance zone around $125,000 aligns with prior liquidity clusters and Fibonacci retracement levels. The formation of a cup-and-handle pattern, combined with institutional inflows and safe-haven demand, further strengthens the bullish case.

Analysts have also noted a potential "Santa Rally," with Bitcoin rebounding 6.5% from recent lows and approaching $90,000. Derivatives markets show favorability for bulls, with short liquidations providing upward pressure. Polymarket data projects a $138,617 ceiling by year-end 2025, with $100,000 considered a realistic target.

Challenges and Considerations

While the technical outlook is favorable, Bitcoin's overbought RSI and bearish Supertrend signal potential corrections. A break below $97,486.82 could trigger a pullback, particularly if sentiment indices dip below 50% or regulatory uncertainty emerges. Additionally, the 2025 bearish wedge pattern- where price action remained bearish despite bullish RSI divergence-serves as a cautionary example.

Conclusion

Bitcoin's RSI divergence, coupled with a confluence of bullish technical and fundamental factors, presents a compelling case for a price surge beyond $120,000. Historical precedents, such as the 2020 bull run, demonstrate the predictive power of RSI divergence when confirmed by broader market conditions. However, investors must remain vigilant to overbought risks and macroeconomic shifts. As Bitcoin navigates this critical juncture, a balanced approach-leveraging both technical analysis and macroeconomic insights-will be essential for capitalizing on its potential.