Crypto is shaking. Not only is the market shaken from the recent downtrend, but there’s an extra layer of doom and gloom due to an impending “death cross” in Bitcoin.
Discover the alarming sounds of a crossover between two popular moving averages. Learn what it could signify and how Bitcoin has responded in the past.
Source: BTCUSD on TradingView.com| Source: BTCUSD on TradingView.com
Is The Bitcoin Death Cross a Sign of Doom and Gloom for Cryptocurrencies?
Bitcoin price on daily BTCUSD charts is only days away from completing a “death cross.” According to Investopedia, “a death cross is a technical chart pattern indicating the potential for a major sell-off.” It occurs when a short-term moving average (in this case the 50-day MA) crosses below a long-term moving average (the 200-day MA).
The signal tells investors that the asset’s growth has slowed and is showing potential of a bear trend. A long-term price decline is possible. However, in Bitcoin, things don’t always behave the way they should.
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Across eight total death crosses in the first ever cryptocurrency, the average drop within a month from the cross is a mere 25% (h/t Dan via TonyTradesBTC) – puny by crypto standards.
The opposite signal, golden crosses, also don’t always have a positive impact, either. Bitcoin’s price today is much lower than the value of Bitcoin when it was last activated by a golden cross.
History of death and gold crosses in emoji| Source: BTCUSD on TradingView.com
Data shows that you should fear the Reaper
These cross-overs can be used to confuse market participants during consolidation phase. There were two death crosses, and two golden cross before the 2020 bull market breakout. A notable death cross occurred in October 2019, which resulted in an unexpected 42% pump on the previous signal.
Despite all the strength, prices action declined to new lows. Only to the golden cross, death crosses, and then to the golden cross again. Ahead of the fabled 2016-2017 bull run, there was also a similar fakeout – depicted in the green box.
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However, before the bear market of 2014-2015, there had been a death crossing, gold cross, and back into another death cross fakeout, which closely resembles what is happening in Bitcoin now.
This could lead to a new bear phase. But the data otherwise shows that the “death cross” is not a reaper you need to fear.
Let’s see how it works. #Bitcoin . React to the “death cross”☠️❓
— NEWSBTC (@newsbtc) January 12, 2022
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Featured image taken from iStockPhoto. Charts taken from TradingView.com