Bitcoin Looming Death Cross May Not Be As Dire For BTC Bulls

Bitcoin is approaching what could be a significant technical event known as the death cross, but according to some analysts, this signal might not be as alarming as it appears. 

Source: www.sozcu.com.tr

The death cross occurs when an asset’s 50 day simple moving average (SMA) crosses below its 200 day SMA. This pattern is typically viewed as a bearish signal, suggesting that the short term price momentum is weaker than the long term trend, often leading to increased fear and reactive behavior among investors.

At present, Bitcoin’s 50 day SMA is at $62,141 and is in decline. It is nearing the point where it might cross below the 200 day SMA, which stands at $61,676. Such a crossover generally indicates that short term momentum is waning relative to the long term trend, which can trigger a surge in market anxiety and lead to rash trading decisions. Despite the negative connotations usually associated with a death cross, historical data suggests that this technical indicator might not always be a reliable predictor of future price declines. 

Bitcoin analyst Timothy Peterson has pointed out that, based on historical patterns, the death cross often results in what is known as a bear trap. This scenario occurs when a death cross is followed by a short term price decline that tricks bearish traders into entering or holding onto short positions, only for the market to reverse direction and rise significantly. Peterson’s analysis reveals that Bitcoin has experienced a death cross eight times since 2015. Remarkably, in 67% of these instances, Bitcoin’s price increased within two months following the crossover. For instance, after the death cross on September 12, 2023, Bitcoin’s price dropped to $24,000 but then began a substantial uptrend, ultimately reaching a new all time high on March 14, 2024.

This historical perspective suggests that the death cross, while it may signal a temporary bearish phase, does not necessarily predict long term declines. Instead, it may act as a bear trap, creating opportunities for substantial upward movements. As such, the death cross might be less of a definitive bearish signal and more of a market phenomenon that requires cautious interpretation.

Bitcoin’s Upcoming Super Bull Rally

Pseudonymous trader Trader has supported the bear trap theory by suggesting that Bitcoin’s recent price dip to $49,000 marks the start of a new super bull rally. In a post on X dated August 6, the trader referenced historical analysis from 2013, noting that the recent drop finally printed a wick below the support line. This pattern, argued, resembles the previous supercycle observed from 2016 to 2018.

Trader Tardigrade’s analysis indicates that Bitcoin's recent price movement mirrors a pattern from 2016, which led to a parabolic run peaking in 2017. The analyst suggests that the recent wick below the support line could signal a future all-time high. However, this pattern has occurred only once and may require further validation within the current currency cycle. Additionally, the “wick down” may have arisen under different macroeconomic and geopolitical conditions, implying that events may not unfold as they did between 2013 and 2018. Michael Nadeau, founder of DeFi Report, remains bullish despite recent market turmoil. He compares the current setup to September/October 2020, when Paul Tudor Jones endorsed Bitcoin as the “fastest horse,” and Michael Saylor began purchasing BTC through MicroStrategy’s balance sheet.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.