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Death Cross For Bitcoin (BTC): Is It The Start Of A Bear Market?

Today’s Bitcoin chart generated one of the most bearish signals in traditional technical analysis: the death cross. Does it represent a valid argument for the beginning of a long-term bear market? What has been its historical efficiency during the almost 12 years of Bitcoin trading? Can the cross of death lead to the upside?

Today’s BeInCrypto review answers all of these questions. We analyzed the 8 death cross instances in BTC history to understand how much today’s event could affect the cryptocurrency market in the near future. The conclusions can be surprising!

What is a death cross?

A death cross is a pattern in classic technical analysis where the short-term relative moving average crosses below the long-term relative moving average (MA). Its opposite is the golden cross. The former is a confirmation of a downtrend, while the latter indicates an uptrend.

Traditionally, the death cross and the golden cross are supposed to occur between the 50 MA and the 200 MA on the daily chart. These curves take into account a large amount of data, so their movement is more of an indication of a long-term trend than a reaction to current changes in an asset’s price.

Example of death cross on SPX chart / Source: hwww.investopedia.com

The death cross, like most technical indicators, is the so-called lagging indicator. This means that it only confirms events that have already occurred in the market and possibly indicates a general trend. For this reason, its readings often generate false signals and should never be used without reference to other indicators.

Death Cross for Bitcoin

Bitcoin is currently struggling to hold long-term support in the $40,000 – $42,500 area. It reached this range after a drop of about 40% from the all-time high of $69,000 on November 10, 2021.

The sharp drop in the price of BTC in the last 2 months has led to a drop in the 50 MA, which today intersects with the 200 MA. Thus, a classic Bitcoin death cross is taking place today (red circle). Interestingly, the 200 MA is still positively sloping as its reaction to the recent price drop is lagging.

Chart by TradingView

On September 15, 2021, we witnessed a golden cross on the BTC chart (green circle). Its appearance was a consequence of the dynamic growth of Bitcoin prices after bottoming out at $29,500 on July 21, 2021. Measuring from this event to the ATH, the largest cryptocurrency gained 50%. This was despite initially falling 14% and posting a bottom of $39,500.

Historical performance: 2011-2018

In the almost 12 years of Bitcoin trading history, the death cross has occurred 8 times. Let’s take a look at the price action that followed this signal each time to see if we should expect the start of a bear market. For a better illustration of price changes and trends, we use a logarithmic chart.

The first death cross occurred during the Bitcoin genesis cycle on September 28, 2011. At the time, BTC was falling after reaching a high of $31.90. Since crossing the 50 MA below the 200 MA, Bitcoin has dropped another 60%. It registered a macro bottom of $2.01 on November 18, 2011. It never returned to that price thereafter.

Chart by TradingView

Another 3 death cross cases took place after the 2012-2013 bull market. The bearish signals occurred after Bitcoin established a high of $1,177 on November 30, 2013. Interestingly, only one of these signals led to sharp declines and reached a bear market bottom. In addition, death cross cases have occurred:

  • on April 8, 2014, after which BTC increased by 52%,
  • on September 4, 2014, after which BTC fell by 66%,
  • on September 13, 2015, after which BTC surged 116%.
Chart by TradingView

After another bull market from 2016-2017 and a historic ATH of $19,764, the death cross occurred on March 30, 2018. Immediately after this signal, Bitcoin surged 42%. However, it eventually fell over the next 9 months, reaching a low of $3,148 on Dec 15, 2018. Measured from the intersection of the 50 MA below the 200 MA, this was a 55% decline.

Chart by TradingView

Historic Performance: 2019-2021

The next 2 death cross cases were in late 2019 and early 2020. Both signals were mixed and the price action that followed was not easily predictable. A black swan related to the COVID-19 pandemic occurred in March 2020, making possible predictions even more difficult. The cross of death took place:

  • on October 25, 2019, after which BTC fell by 25%,
  • on March 25, 2020, after which, BTC surged 49%.
Chart by TradingView

Finally, the most recent death cross, prior to the one taking place today, occurred on June 19, 2021. At the time, Bitcoin was undergoing a deeper 55% correction from its all-time ATH of $64,840 on April 14. of 2021.

The death cross then occurred a month before the correction ended. In the immediate aftermath, the price of BTC certainly fell another 18%, but eventually recovered and surged 49% before the next golden cross, which we wrote about in the previous section.

Chart by TradingView

conclusion

Historical analysis of Bitcoin prices after the death cross occurrence yields mixed results. In 50% of cases, the indicator correctly signaled a downtrend and predicted further declines, on average 51.5%. On the other hand, in the remaining 50% of cases, it generated a false signal and further increases occurred, by 66.5% on average.

These results lead to several conclusions:

  1. The death cross on the Bitcoin chart is not an unequivocal signal of the continuation of the downtrend and is significantly less effective than in traditional markets.
  2. The thesis of the beginning of a bear market cannot be defended solely with reference to this indicator. It must be juxtaposed with other signals.
  3. In the long term, the BTC market grows over time, so even bearish death cross readings historically lead to slightly larger gains than losses.

For the latest Bitcoin (BTC) review from BeInCrypto, click here.

Disclaimer

All information contained on our website is published in good faith and for general information purposes only. Any action that the reader takes on the information found on our website is strictly at their own risk.

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HELEN HERNANDEZ

Helen Hernandez is our best writer. Helen writes about social news and celebrity gossip. She loves watching movies since childhood. Email: Helen@oicanadian.com Phone : +1 281-333-2229

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