Bitcoin Death Cross Approaches Nobody Panic

Bitcoin does not often even get close to its 200-week moving average, and the fact that the price is even there is a rare event. Usually, when this level axitrader review was reached, it was followed by a period of strong price increases. Fundamental analysis can help you predict the impact of external events on Bitcoin’s price, thereby allowing you to make better trading decisions during a bear market. While the death cross and golden cross might provide useful insight into possible market patterns, it is crucial to realize that they are not perfect forecasts of Bitcoin price fluctuations. The death cross usually occurs after a long downtrend, whereas the golden cross appears after a period of consolidation or a signal move upwards.

This might result in losses or missed chances if traders depend solely on death crosses without examining other indicators or circumstances. Discover the importance of Bitcoin’s death cross, how it affects trading decisions, and strategies for using this bearish signal in the cryptocurrency market. The opposite of a death cross pattern is a golden cross, in which a shorter-term MA crosses above a longer-term MA and is typically considered a bullish signal. On June 21, Bitcoin’s 50-day average fell below its 200-day moving average, triggering a death cross signal and causing reason for concern to some investors. On Tuesday, its price briefly fell below $29,026, temporarily erasing its 2021 gains, before climbing back above $32,000. Bitcoin’s death cross is a popular pattern in technical analysis that might provide useful insights into potential price declines.

When the shorter-term MA crosses the longer-term one, it may signal that a trend change is underway in that timeframe. Day traders, for example, may find smaller periods, such as the 5-period (e.g., minute) and 15-period moving averages, more helpful in trading intraday death cross breakouts. For example, they may opt for timeframes that reflect the previous hours, days, weeks, etc. On a Bitcoin price chart, the death cross occurs when the 50-day moving average (MA) crosses below the 200-day moving average.

The pattern’s predictive ability is backed by the fact that it has preceded all the severe bear markets of the past century. “Technically, the 50-week moving average continues to act as a valid resistance from which the selling intensifies,” Kuptsikevich said. By definition, the death cross is an indicator of what has already happened—it isn’t always an accurate signal for bearish movements still ahead. A death cross is a little forex broker rating more unsettling, as it has been known to precede some of the worst bear markets in history.

Diversification and Asset Allocation

Even though the moving average-based death cross represents what happened in the past, many consider it a forward-looking indicator. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no stake in bitcoin or cryptocurrency-related securities.

1. But its historical track record suggests the death cross is rather a coincident indicator of market weakness rather than a leading one.
2. Traders can protect themselves if the downtrend continues by placing a stop-loss order slightly below the death cross point.
3. Bitcoin crashed to a daily low of $49,577 yesterday and could be on the brink of a death cross, a pattern that has historically spooked traders and stirred up a storm of pessimism.
4. While a bearish signal, the pattern is often a better indication of a short-term market slump or price correction than the emergence of a bear market or recession.
5. Because it typically indicates impending downward pressure, a death cross frequently causes traders to exercise increased caution.

Technical Indicators and Confirmation

In technical analysis, moving averages are widely used to smooth out price volatility and identify trends. Death crosses are powerful trading signals defined by the short-term moving average crossing below a long-term moving average, telling investors that momentum is changing to the downside. Though the financial press often labels the occurrence of a death cross as the harbinger of a recession, in reality, it is usually a better signal of a short-term market slump or price correction.

Market Sentiment

The third moving average is the 100-day MA, a medium-term MA between the other two moving averages. For a double death cross to appear, a short-period moving average (50-day MA) will have to cross below both long-period moving averages (100-day MA and 200-day MA). To increase the reliability of the signals, both patterns should be corroborated by other technical indicators like volume analysis, support and resistance levels, or trendline breakouts. Bitcoin death cross is a technical analysis pattern that comprises a specific configuration of moving averages that indicates a possible downward trend in the price of Bitcoin. A death cross—or its opposite, a golden cross—should never be considered in isolation, particularly as they focus solely on past performance. For instance, weekly charts typically show a bullish trend over a longer timeframe, with expectations of a bearish correction in shorter timeframes.

Bitcoin’s 20-Week MA Goes Below 200-Week MA

Traders who spotted and acted on these signals were able to capitalize on the negative trends and potentially profit. This shows that the death cross has been a solid indicator of bearish market sentiment on different occasions. The market frequently experiences a negative fluctuation in Bitcoin’s price after the death cross has been formed.

A death cross example can be observed when the short-term MA crosses below the long-term MA. Then, as sellers gain the upper hand, prices start to fall, and the short-term MA diverges from the long-term MA. In other words, a decline is not necessarily imminent right when the short-term average slips below the long-term average. They also say that the death cross does not guarantee future declines, as other market forces can drive the security – or currency – higher. Bitcoin experienced a severe drawdown in March 2020—but by the time the death cross signal emerged on the coin’s price charts, Bitcoin had already moved past its lows, Cox points out.

Correspondingly, the 50-day MA is calculated using a much shorter time frame than the 200-day MA, meaning the 50-day average tracks the short-term price more closely than the 200-day average does. Therefore, when the 50-day MA line crosses below the 200-day MA line, short-term momentum can be viewed as declining compared to the last 200 days, suggesting a change in the mid-to-long-term price trend. Bitcoin’s 50-week simple moving average has crossed under its 200-week SMA, confirming a “death cross,” a bearish indicator suggesting the short-term price pullback could become a more sustained downtrend.

However, to make well-informed trading decisions, this analysis must be supplemented with other indicators and information. Nevertheless, it is important to consider the larger market environment because death crosses do not always result in appreciable price drops. “It’s not a welcome sight for bulls when you see the formation,” Nathan Cox, Chief Investment Officer at digital asset-focused investment firm Two Prime, said in an email. And yet, the death cross is exactly what emerged on Bitcoin’s price charts yesterday, and it’s “top of mind for all technical analysts,” Cox said. The upcoming months will be important for Bitcoin as it tests current levels and proves whether it can break out of its current rut. The technical indicators may show that it is experiencing an uncertain period, but the asset is breaking into the mainstream, so some of its past patterns may not hold as true as before.

If traders depend exclusively on the death cross analysis without considering other aspects, these false signals can lead to missed trading opportunities or, in some situations, losses. The significance of the death cross or golden cross varies based on the strength of the moving average crossover and the overall market circumstances. Traders should evaluate the context as well as the magnitude of the crossover when evaluating the signal’s reliability. A death cross is seen as a bearish signal among short-term traders, but—despite its name—does not necessarily mean impending disaster. History has proven that long-term hodlers who are capable of going through the pains of a bearish period are often rewarded with huge gains after phenomenal recoveries.

Indeed, Bitcoin has plunged 30% between its highest price on July 29 and its lowest price on August 5, which is worse than the Nasdaq and the SP500 did in the same period. Ultimately, crossovers can merely tell us what we already know, that momentum has shifted and should not be utilized for market timing or predictive purposes. In short, while all big sell-offs in the stock market start with a death cross, not all of them lead to a significant decline in the market. For example, according to Fundstrat, the S&P 500 was higher a year after the occurrence of a death cross about two-thirds of the time, averaging a gain of 6.3% over that period.