Bitcoin (BTC) formed a trading pattern on January 8 that is widely watched by traditional chartists for its ability to anticipate further losses.
In detail, the cryptocurrency’s 50-day EMA (50-Day EMA) fell below the 200-Day EMA (200-Day EMA), forming the so-called Death Cross. This pattern emerged when Bitcoin has had a tough ride in the past two months, dropping more than 40% from its all-time high of $69,000.
Throughout history death
Previous death crosses have been insignificant to Bitcoin over the past two years. For example, a bearish 50-200 day EMA cross appeared in March 2020 after BTC price dropped from around $9,000 to below $4,000, which turned out to be later than the prediction.
In addition, its occurrence has done little to prevent Bitcoin from rising to around $29,000 by the end of 2020, as shown in the chart below:
Likewise, the death cross that appeared on Bitcoin daily charts in July 2021 – as in March 2020 – was more delayed and less predictable. Their occurrence did not lead to a large-scale sale. Instead, the price of BTC consolidated sideways before climbing to $69,000 by November 2021.
But, the bearish moving average crossed in both cases, as mentioned above, brought good news that may have limited its impact on the bitcoin market.
For example, the recovery in the price of bitcoin in July 2021 came largely on the heels of rumors that Amazon would start accepting cryptocurrencies for payments – which later turned out to be false – and after a conference dubbed “B Word”, which saw the Twitter CEO speak Jack Dorsey, Tesla CEO Elon Musk, and Cathy Wood, CEO of ARK Invest, are vocal in favor of Bitcoin.
Similarly, bitcoin has rebounded sharply from its levels below $4,000 in March 2020, primarily after the US Federal Reserve announced its loose monetary policies to contain the fallout from the stock market crash led by the coronavirus pandemic.
The death cross this time looks dangerous
The recent decline in Bitcoin reflected growing investor concern about the Federal Reserve’s decision to aggressively abandon its loose monetary policies – including a rollback of its $120 billion-a-month asset-purchase program followed by three price hikes – in 2022.
Higher interest rates usually make owning volatile assets like bitcoin less attractive than government bonds, which provide guaranteed returns.
“This is evidence that bitcoin is acting as a risky asset,” Noel Acheson, head of market insights at crypto lender Genesis Global Trading, told the Wall Street Journal, adding that short-term holders of coins would be “closest to the exit.”
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As a result, the general drop in cash, along with the formation of a death cross, could lead to further selling in the bitcoin market. However, that is unless BTC price rebounds from the current support level around $40,000, the 0.382 Fibonacci line shown in the chart below.
However, a break below $40,000 could risk sending bitcoin price to the next Fibonacci support line near $35,000.
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