Bitcoin’s chart generated one of the most bearish signals in traditional technical analysis today – the death cross. Does it represent a valid argument for the start of a long-term bear market? What has been its historical effectiveness over the nearly 12 years of Bitcoin trading? Can the cross of death lead upwards?
Today’s BeInCrypto review answers all these questions. We take a look at the 8 fatal crosses in BTC history to understand how today’s event could affect the cryptocurrency market in the near future. The findings 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 first is a confirmation of a downtrend, while the second indicates an uptrend.
Traditionally, the death cross and the golden cross are believed to occur between 50 MA and 200 MA on the daily chart. These curves take into account a large amount of data, so their movement is more an indication of a long-term trend than a reaction to current changes in the price of an asset.
The death cross, like most technical indicators, is a so-called lagging indicator. This means that it only confirms events that have already taken place 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 maintain long-term support in the $40,000-$42,500 area. It reached this range after a decline of around 40% from the all-time high of $69,000 on November 10, 2021.
The sharp decline in the price of BTC over the past 2 months has led to a decline in the 50 MA, which today intersects with the 200 MA. Thus, a classic Bitcoin death cross (red circle) takes place today. Interestingly, the 200 MA still has a positive slope as its reaction to the recent price decline is delayed.
On September 15, 2021, we witnessed a golden cross on the BTC chart (green circle). Its appearance was a consequence of Bitcoin’s dynamic price growth after bottoming out at $29,500 on July 21, 2021. Measuring from this event at the ATH, the largest cryptocurrency gained 50%. This is despite an initial drop of 14% and a low of $39,500.
Historical performance: 2011-2018
In Bitcoin’s nearly 12-year 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 and trend changes, we use a logarithmic chart.
The first cross of death occurred during Bitcoin’s genesis cycle on September 28, 2011. At that time, BTC was down after peaking at $31.90. Since breaking the 50 MA below the 200 MA, Bitcoin has lost another 60%. It recorded a macro low at $2.01 on November 18, 2011. It never returned to that price thereafter.
3 more cases of death crosses occurred after the bull market of 2012-2013. The bearish signals occurred after Bitcoin peaked at $1177 on November 30, 2013. Interestingly, with only one of these signals leading to steep declines and hitting a bear market bottom. In addition, cases of cross-death have occurred:
- on April 8, 2014, after which BTC rose by 52%,
- on September 4, 2014, after which BTC fell 66%,
- on September 13, 2015, after which BTC rose by 116%.
After another bull market from 2016-2017 and a historic death cross at $19,764 that occurred on March 30, 2018. Immediately after this signal, Bitcoin rose by 42%. However, it eventually declined over the next 9 months, reaching a low of $3,148 on December 15, 2018. Measured from the intersection of the 50-MA below the 200-MA, it was a down 55%.
Historical performance: 2019-2021
The next 2 death crossover events occurred in late 2019 and early 2020. Both signals were mixed and the subsequent price action was not easily predictable. A black swan linked to the COVID-19 pandemic occurred in March 2020, which made 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 rose by 49%.
Finally, the last fatal cross – before today’s – occurred on June 19, 2021. At that time, Bitcoin was experiencing a deep 55% correction from its historic ATH of $64,840 on April 14, 2021. .
The death cross then occurred a month before the end of the correction. Immediately afterwards, the price of BTC admittedly fell another 18%, but eventually rebounded and rose 49% before the next golden cross, which we discussed in the previous section.
Historical Bitcoin price analysis after the death cross appeared shows mixed results. In 50% of cases, the indicator correctly signaled a downtrend and predicted further declines – by 51.5% on average. In contrast, 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:
- The death cross on the Bitcoin chart is not an unequivocal signal of the continuation of the downtrend and has a significantly lower efficiency than traditional markets.
- The thesis of the beginning of a bear market cannot be defended by referring to this indicator alone. It must be juxtaposed with other signals.
- In the long term, the BTC market expands over time, so even bearish cross death readings historically lead to slightly larger gains than losses.
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