Bitcoin hits first daily death cross this year: Looking back to see ahead

Bitcoin’s daily “death cross” has once again reared its ugly head, with both its long-term and short-term moving averages having crossed on Tuesday.

While considered an ominous signal by traditional financial chartists, timing exits of positions based on reading the tea leaves from bitcoin’s own death crosses often leads to mixed results.

In the realm of technical analysis, a “death cross” is a bearish signal that occurs when a shorter-term moving average crosses below a longer-term moving average. 

The most commonly observed averages for this indicator are the 50-day and 200-day. When the 50-day moving average crosses below the 200-day moving average, it signifies a potential long-term downtrend in the asset’s price. Or, so the thinking goes.

This is considered a warning sign for investors and traders, some of whom may interpret this crossover as a sell signal or a sign of impending bearish market conditions. 

It’s worth noting that, depending on who you ask, technical analysis can either be considered voodoo magic or an important part of one’s trading strategies. Blockworks reached out to several trading desks to get their take, and were either denied to offer comment or went unanswered.

Looking back to see ahead

Bitcoin (BTC) experienced one of the first such signals back in April 2014, immediately shedding some 17% of its value from $442 to $363 — though the bearish price action was short-lived. Shortly following its April sell-off, the asset rose 90% and topped out at $683 roughly 50 days later.

It wasn’t until September of that same year when a second death cross had formed that the asset entered into a prolonged bear market that lasted an entire year.

Roughly three and a half years later, the same signal occurred again following a 10% sell-off, from $7,932 on March 29 to just over $7,000. 

Traders looking immediately to the cross would have had to contend with a reversal in its downward trajectory after BTC rose more than 50% to just under $10,000, a month later.

Bitcoin eventually succumbed to further sell-side pressure in a subdued market that persisted right until April 2019 when it was cut short by news of Meta’s stablecoin ambitions.

Other notable examples include March 2020 and June 2021, which more or less proved to be false signals as in both cases sell-side pressure was also short-lived.

Instead, it would appear that more often than not, it’s usually the death cross that precedes a short-lived bear market that tends to offer any valuable alpha, according to some. 

All of this is not to say that the death cross does not provide at least some valuable tell, though it’s an important reminder that this year’s death cross, as in 2022, should be measured against macroeconomic fundamentals and market sentiment.

Oh, and don’t forget about all-important on-chain metrics.

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