Bitcoin (BTC) formed a trading pattern on January 8 that is widely watched by traditional analysts for its ability to anticipate 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 crossover’. The pattern appeared when Bitcoin experienced a rough ride in the previous two months, dropping more than 40% from its record high of $ 69,000.
History of the crossing of death
Previous death crosses were negligible for Bitcoin for the past two years. For example, a bearish crossover of the 50-200 day EMA in March 2020 appeared after the price of BTC had fallen from almost $ 9,000 to less than $ 4,000, resulting more lagging than predictive.
Furthermore, its occurrence did little to prevent Bitcoin from surging to around $ 29,000 by the end of 2020, as shown in the chart below.
Similarly, a death crossover appeared on Bitcoin’s daily charts in July 2021 which, as in March 2020, was further lagging and less predictive. Its occurrence did not lead to a massive sale. Instead, the price of BTC just side-consolidated before go up to USD 69,000 in November 2021.
But the bearish moving average crossovers in both cases, as mentioned above, accompanied good news, which may have limited its impact on the Bitcoin market.
For example, lhe Bitcoin price recovery in July 2021 came primarily from rumors that Amazon would start accepting cryptocurrencies for payments, which later turned out to be false, and after a conference, called “The B-Word“which saw Twitter CEO Jack Dorsey, Tesla CEO Elon Musk, and ARK Invest CEO Cathie Wood speaking in favor of Bitcoin.
Similarly, Bitcoin rebounded sharply from its levels below $ 4,000 in March 2020, primarily after the US Federal Reserve announced its flexible monetary policies to contain the aftermath of the stock market crash led by the coronavirus pandemic.
The crossing of death this time seems dangerous
Bitcoin’s latest crash reflected growing investor concern over the decision of the Fed to aggressively undo its loose monetary policies, including cutting its $ 120 billion-a-month asset purchase program followed by three rate hikes, in 2022.
As usual, the increase in interest rates makes maintaining volatile assets like Bitcoin be less attractive than government bonds, which offer guaranteed returns.
“This is proof that bitcoin acts as a risk asset,” dijo al Wall Street Journal Noelle Acheson, director of market insights at cryptocurrency lender Genesis Global Trading, added that short-term holders would be the “closest to exit.”
As a result, the overall reduction in cash liquidity, coupled with the formation of death crosses, could trigger further selloffs in the Bitcoin market. However, that is unless the price of BTC recovers from its current support level around $ 40,000, the 0.382 Fib line shown in the chart below.
Nonetheless, a break below $ 40,000 may risk sending the price of Bitcoin to the support of the next Fib line near $ 35,000.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Each investment and commercial movement involves a risk, you must do your own research when making a decision.
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