With Easter just around the corner, it almost seems ironic that the bitcoin price is technically nearing a death cross. Everywhere you turn, there’s a new forecast for the bitcoin price — from $30,000 to $3,500. Technical analysis, which is used by traders to forecast whether securities are going to move higher or lower, has been around for more than a century. It was used by Charles Dow in the late 1800s and is still relied upon today.
Now traders who rely on price and volume charts are applying the method to cryptocurrencies, and bitcoin is encroaching upon the dreaded death cross — when charts reflect a “crossover” between the 50-day (short-term trend) and 200-day (longer-term trend) moving averages, as pointed out by CNBC. While bitcoin has already been trading in a bear market for 2018, the death cross would mean that it would become more pervasive of a trend.
Technical analysis throws reason out the window and focuses on the what more than the why. It focuses on long-term charting data to determine where the price is headed and by how much. The problem with applying technical analysis to bitcoin is that it doesn’t have decades of trading history from which to draw analysis, let alone multiple death cross cycles from which to gain perspective.
Historically, a death cross trading pattern in the stock market could be a “bullish contrarian indicator,” as the Wall Street Journal pointed out years ago. And don’t look now but the stock market remains in a bull market run despite volatility, conditions the cryptocurrency markets know all too well.
But the BTC price dropped below the 100-day moving average, which has some traders skittish. On the doom and gloom side of things, Jim Iuorio of TJM Institutional Services told CNBC that despite the lack of historical evidence in bitcoin trading –
“[Any] time the 50-day crosses the 200-day, it should flash a warning…and when you couple that with the fact that bitcoin has been trending steadily lower since the launch of futures, I think that it is a major negative.”
CCN.com recently reported about a technical analyst predicting that if bitcoin hit the death cross, it would tumble to $2,800. Others were calling a near-term bottom of $5,873.
Digital asset fund manager Brian Kelly, on the other hand, is watching the uptrend –
“Bitcoin, just like the spot FX markets, follows technicals closely, therefore these support levels gain more importance. If these levels hold, then it will confirm the uptrend from August is still valid.”
If we look at the evidence thus far, bitcoin reached a death cross in 2015 when it was trading in the $200 range. But in that same year, the bitcoin price more than doubled to nearly $500. Bitcoin hasn’t touched on a death cross since that time.
Featured image from Shutterstock.
Last modified: July 13, 2020 9:34 PM UTC