3 warning signs suggest the Bitcoin price rally is overextended

Bitcoin (BTC), which was under scrutiny for its strength on Oct. 7, saw new doubts from analysts as they viewed a possible reversal of Wednesday’s short squeeze.

BTC/USD 1-hour candle charts (Bitstamp). Source: TradingView

Rates of funding in the red zone

Data from TradingView and Cointelegraph Markets Pro showed that BTC/USD hovered around $54,000, after it failed to reach support at $55,000.

The Bitcoin price surged to $55,700 the previous day, which was accompanied with significant buying pressure.

However, as funding rates turn positive across exchanges on Thursday, concerns were focused on what could be an opposite move lower.

Markets expect more upside, and the markets funding rates are turning too positive. This suggests that BTC is a significant asset. If a downtrend does occur, it could be accelerated and intensified by a massive unwinding of positions.

BTC/USD chart vs. Bitcoin funding rates Source: Bybt

Sentiment data reflected the mood of investors, with the Crypto Fear & Greed Index reaching 76/100, which represents “extreme greed”.

Rekt Capital analyst and trader Rekt Capital said that investors are “extremely greedy” about Bitcoin right now.

As of Oct. 7, the Crypto Fear & Greed Index has been updated. Source: Alternative.me

Profit-taking: How to prepare

Bitcoin is now below $10,000, but still has significant resistance levels at $58,000 and $60,000 at the moment. This resistance will keep Bitcoin from returning to price discovery.

Related: Price spike: Are whales leading the approval of a Bitcoin futures exchange traded fund (ETF)?

Cointelegraph reported that October will close below the highs. November, however, could see a return of lower levels, before Decembers finale that obliterates all records.

However, market veterans are already suggesting an exit strategy, including John Bollinger, the creator of Bollinger Bands trading indicators.

Second goal achieved, $BTCUSD. UpperBB is expanding with the rally. Maintain a trailing stop such as BBstop, or a Chandelier. It is safe to say that everything is fine for now. However, you should start looking for signs of a top or exit. I will be traveling for a few weeks. Good trading! #Bitcoin
— John Bollinger (@bbands) October 5, 2021

Bollinger bands are indicators of upward and downward volatility in an asset. They suggest that calmer conditions should prevail. However, volatility is triggered when the bands narrow.

Bollinger bands for BTC/USD 1-day candle charts (Bitstamp). Source: TradingView

Altcoins are expected to not deliver definitive cycle gains until next years.