Bitcoin (BTC) formed a trading pattern on Jan. 8 that is widely observed by traditional chartists for its ability to anticipate further losses.
In detail, the 50-day exponential moving average (50-day EMA) fell below its 200-day exponential moving average (200-day EMA) and formed a so-called “death cross”. The pattern occurred when Bitcoin took a tough ride in the past two months, falling more than 40% from its record high of $ 69,000.
BTC / USD daily price chart. Source: TradingView
History of the death cross
Previous death crosses have been insignificant to Bitcoin for the past two years. For example, in March 2020 after the The BTC price had fallen from nearly $ 9,000 to under $ 4,000what turns out to be delayed as predictive.
Additionally, its demeanor did little to help Bitcoin soar to around $ 29,000 by the end of 2020, as shown in the graph below
BTC / USD daily price chart with death cross from March 2020. Source: TradingView
Similarly, a death cross appeared on the Bitcoin daily charts in July 2021, which – as in March 2020 – was more delayed and less predictive. His appearance did not result in a massive sell-off. Instead, the price of BTC previously only consolidated sideways Rally to $ 69,000 until November 2021.
BTC / USD daily price chart with death cross. Source: TradingView
But the bearish moving average overlap in both cases, as mentioned above, accompanied some good news that may have limited its impact on the Bitcoin market.
For example, the Bitcoin price rally in July 2021 came mainly after rumors that Amazon would accept cryptocurrencies for payments – which later turned out to be wrong – and after a conference titled “The B word”, At which Twitter CEO Jack Dorsey, Tesla CEO Elon Musk and ARK Invest CEO Cathie Wood praised Bitcoin.
Similarly, Bitcoin rebounded sharply from below $ 4,000 levels in March 2020, largely after the Federal Reserve announced its loose monetary policy to contain the consequences of the stock market crash caused by the coronavirus pandemic.
The death cross looks dangerous this time
Bitcoin’s recent decline reflects growing investor concerns about the Fed decision to aggressively unwind its loose monetary policy – including withdrawing its $ 120 billion monthly purchase program, followed by three rate hikes – in 2022.
Typically, rising rates make the hold volatile assets like bitcoin less attractive than government bonds that offer guaranteed returns.
“This is proof that Bitcoin acts like a risk asset,” said Noelle Acheson, Head of Market Insights at crypto lender Genesis Global Trading. told the Wall Street Journal, adding that the short-term owners are the “closest to the exit”.
Related: Bitcoin could break September lows of $ 30,000, warns traders
As a result, the general decrease in cash liquidity coupled with the Death Cross formation could trigger further sell-offs in the Bitcoin market. However, it does unless BTC price recovers from its current support level around $ 40,000, the 0.382 Fib line shown in the chart below.
BTC / USD daily price chart with Fib retracement levels. Source: TradingView
That said, a break below $ 40,000 could risk sending Bitcoin price to the nearest Fib line support near $ 35,000.
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