Bitcoin (BTC) formed a trading pattern on January 8 that is widely monitored by traditional charters for its ability to predict further losses.
In detail, the cryptocurrency’s 50-day exponential moving average (50-day EMA) fell below its 200-day exponential moving average (200-day EMA), forming a so-called “death cross”. The pattern emerged when Bitcoin went through a tough ride the previous two months, falling over 40% from a record high of $ 69,000.
Death crosses history
Previous death tolls have been negligible for Bitcoin over the past two years. For example, a 50-200-day EMA bearish crossover appeared in March 2020 after the BTC price had fallen from almost $ 9,000 to below $ 4,000, which turned out to be a lag rather than predictive.
In addition, the presence of little prevented Bitcoin from rising to around $ 29,000 by the end of 2020, as shown in the chart below
Similarly, a death cross appeared on Bitcoin’s daily charts in July 2021 which – as in March 2020 – was more lagging and less predictive. Its occurrence did not lead to a massive sale. Instead, BTC’s price was only consolidated sideways before rising to $ 69,000 by November 2021.
But the bearish moving average transitions in both cases, as mentioned above, came with good news, which may have limited their impact on the Bitcoin market.
For example, the Bitcoin price recovery in July 2021 came mainly in the wake of rumors that Amazon would start accepting cryptocurrencies for payments – which later turned out to be fake – and after a conference called “The B-Word”, which saw Twitter CEO Jack Dorsey, Tesla CEO Elon Musk and ARK Invest CEO Cathie Wood speak out for Bitcoin.
Similarly, Bitcoin recovered sharply from levels below $ 4,000 in March 2020, primarily after the US Federal Reserve announced its loose monetary policy to limit the wake of the coronavirus pandemic-led stock market crash.
The cross of death looks dangerous this time
Bitcoin’s recent downturn reflected growing investor concern about the Fed’s decision to aggressively relax its loose monetary policy – including reversing its $ 120 billion a month buying program followed by three rate hikes – in 2022.
In general, rising interest rates make holding volatile assets such as Bitcoin less attractive than government bonds, which offer guaranteed returns.
“This is proof that bitcoin acts as a risk asset,” Noelle Acheson, head of market insight at cryptocurrency lender Genesis Global Trading, told the Wall Street Journal, adding that short-term owners would be “closest to exit.”
Related: Bitcoin may pass $ 30,000 low in September, warns trader
As a result, the overall reduction in cash liquidity, combined with the death cross formation, could trigger further sales in the Bitcoin market. However, unless the BTC price returns from its current support level of around $ 40,000, the 0.382 Fib line shown in the chart below.
Nevertheless, a break below $ 40,000 could risk sending the Bitcoin price to the next Fib line support near $ 35,000.
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