bitcoinBTC) formed a trading pattern on January 8 that is widely watched by traditional chartists for its ability to anticipate additional 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 the so-called 'death crossover'. The pattern appeared when Bitcoin experienced a rough ride in the previous two months, dropping more than 40% from its all-time high of $ 69,000.
History of the death cross
Previous death crosses were negligible for Bitcoin in the last two years. For example, a bearish crossover 50-200 day EMA in March 2020 appeared after the The price of BTC had fallen from almost $ 9,000 to less than $ 4,000, turning out to be more lagging than predictive.
Furthermore, its occurrence did little to prevent Bitcoin from rising to around $ 29,000 by the end of 2020, as shown in the chart below.
Similarly, a death cross 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 earlier going up to $ 69,000 by 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, the recovery in the price of Bitcoin in July 2021 came mainly in the wake of 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 highly in favor of Bitcoin.
Similarly, Bitcoin rallied sharply from its levels below $ 4,000 in March 2020, primarily after the US Federal Reserve. announced its flexible monetary policies to contain the consequences of the stock market crash caused by the coronavirus pandemic.
The cross of death this time seems dangerous.
Bitcoin's latest crash reflected growing investor concern over the Federal Reserve decision to aggressively roll back its loose monetary policies, including cutting its $ 120 billion per month asset purchase program followed by three rate hikes, in 2022.
Typically, rising interest rates make tenure volatile assets like Bitcoin less attractive than government bonds, which offer guaranteed returns.
"This is proof that Bitcoin acts as a risk asset," said Noelle Acheson, head of market analysis at crypto lender Genesis Global Trading, told the Wall Street Journal, adding that short-term holders would be the "closest to exit."
Related: Bitcoin May Surpass September Lows of $ 30,000, Trader Warns
As a result, the overall reduction in cash liquidity, coupled with the formation of the death cross, could trigger further sell-offs in the Bitcoin market. However, that is unless the price of BTC recovers from its current support level around $ 40,000, the Fibonacci line of 0.382 shown in the chart below.
Nonetheless, a break below $ 40,000 may risk sending Bitcoin price to the next Fib line support 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. Every trade and investment move involves risk, you need to do your own research when making a decision.
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