A ‘death cross’ and a ‘golden cross’ are significant technical indicators in the world of financial markets. Both are associated with market momentum, potentially predicting major shifts in price trends. Here’s a deeper dive into these patterns and their relevance to Bitcoin’s recent market movements.
What are Death Cross and Golden Cross?
Death Cross: A death cross occurs when a short-term moving average, such as the 50-day simple moving average (SMA), crosses below a long-term moving average, like the 200-day SMA. This crossover indicates potential bearish movement in the market, meaning prices might decline further.
Golden Cross: Opposite to the death cross, a golden cross occurs when a short-term moving average (50-day SMA) crosses above a long-term moving average (200-day SMA). This suggests potential bullish momentum, hinting at a possible price upswing.
Bitcoin‘s Brush with Death Cross
Bitcoin’s daily chart seems poised for a death cross, the first instance since January 2022. If this happens, it indicates that Bitcoin’s short-term momentum is weaker than its long-term momentum. This could evolve into a prolonged bearish trend. Echoing this sentiment, Alex Kuptsikevich from FxPro states that such a signal accentuates the prevailing bearish momentum in the market.
However, the reliability of a death cross as an isolated indicator for Bitcoin is arguable. Historical data depicts that out of nine previous death crosses, only two resulted in negative returns over varying timeframes (three, six, and twelve months). Only five out of nine instances saw Bitcoin trading lower a year post the death cross.
Contrastingly, the dollar index, which contrasts the US dollar’s value against major global currencies, seems on the verge of a golden cross. Historically, Bitcoin and other risk assets often move inversely to the dollar index. As the dollar index surged by 5.3% since mid-July, Bitcoin declined by 19% within the same timeframe.
The Larger Picture: Macroeconomic Influences
A strengthening US dollar accompanied by macro developments suggests challenging times ahead for risk assets, including cryptocurrencies. The dollar’s strength can cause financial tightening on a global scale, exerting downward pressure on risk assets.
With the U.S. economy performing well, there’s a decreasing likelihood of swift rate cuts by the Federal Reserve in the upcoming year. If rates rise, longer-duration U.S. Treasury yields might also increase, a phenomenon known as bear steepening. Historically, this has often marked major peaks in risk assets.
Stablecoin Concerns
Furthermore, the rapid growth of the stablecoin market, which is closely tied to major cryptocurrencies like Bitcoin and Ethereum, has raised concerns. Federal Reserve official Michael Barr expresses deep concerns about stablecoins that operate without robust federal oversight. A robust regulatory framework is crucial to mitigate potential risks.
Final Thoughts
Technical indicators, while offering valuable insights into market trends, should be seen as one component of a comprehensive analysis toolkit. Sole dependence on patterns, such as the death cross, can be deceptive. Every investment decision should be grounded in a holistic evaluation of diverse factors.
Although Bitcoin faces discernible short-term hurdles, debates about its long-term viability persist. The market’s trajectory will undoubtedly reveal itself in time. Personally, I’m not overly concerned about a Bitcoin death cross. I anticipate the introduction of Bitcoin futures and an ETF to pave the way for more substantial investments in the crypto space. With a Bitcoin halving still on the horizon, the current Bitcoin price might just be a brief lull before a significant upswing.
