Bitcoin (BTC), a trading pattern that formed on Jan. 8, is closely watched by chartists because it can anticipate future losses.
The cryptocurrency’s 50-day exponentially moving average (50 day EMA) fell below its 200day exponential moving mean (200-day EMA), forming a “death cross.” This pattern emerged as Bitcoin experienced a turbulent ride over the past two months, with its record high of $69,000 falling more than 40%.
Daily chart of BTC/USD price. Source: TradingView
History is a history of death
Over the past two year, death crosses have been insignificant for Bitcoin. A 50-200-day EMA bearish crossover occurred in March 2020, after Bitcoin’s price dropped from $9,000 to $4,000 below. This was more lagging than it was predictive.
Its occurrence was not enough to stop Bitcoin rising to $29,000 by 2020 (see chart below).
BTC/USD daily chart with March 2020 death cross. Source: TradingView
Similar to March 2020, a death cross was also seen on the Bitcoin daily charts. It was less predictive and slower than in March 2020. The death cross did not cause a selloff. BTC’s value remained stable and climbed to $69,000 in November 2021.
BTC/USD daily price chart featuring death cross. Source: TradingView
The bearish moving average crossovers in these instances were accompanied by some good news which may have reduced their impact on Bitcoin market.
The Bitcoin price rebound in July 2021 was largely due to rumors that Amazon would accept cryptocurrencies as payments. This conference, dubbed “The B Word,” saw Jack Dorsey, Tesla CEO Elon Musk, and Cathie Wood, CEO of ARK Invest, all speaking strongly in support of Bitcoin.
Bitcoin also recovered strongly from below $4,000 levels in March 2020, primarily because the U.S. Federal Reserve announced loose monetary policies to limit the effects of the stock market crash caused by the coronavirus pandemic.
This death cross looks very dangerous
The latest Bitcoin decline was due to investor concern over the Fed’s recent decision to aggressively dewind its loose monetary policies. This included the reduction of $120 billion per month in asset purchasing programs followed by three rate increases–in 2022.
Rising interest rates can make volatile assets such as Bitcoin less attractive than government bonds that offer guaranteed yields.
“This is evidence that bitcoin acts as a risk asset,” Noelle Acheson of Genesis Global Trading’s market insights told the Wall Street Journal. She also said that short-term holders would be “closest” to the exit.
Related: Bitcoin could surpass $30K September lows according to a trader
The overall decrease in cash liquidity and the death cross formation could lead to further selloffs in Bitcoin markets. This is however, unless the BTC prices rebound from the current support level of $40,000, which is the 0.382 Fib line in the chart below.
BTC/USD daily chart with Fib retracement levels Source: TradingView
A break below $40,000 could lead to Bitcoin prices dropping to near $35,000 support.
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Eileen Wilson –Technology and Energy
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