- Bitcoin has come closer to forming a dreaded Wall Street chart pattern: the Death Cross.
- The bearish technical indicator materializes when an asset’s long-term moving average crosses above its short-term moving average.
- Its occurrence on Bitcoin daily chart in March 2020 led to a 55 percent price crash.
A “death cross” pattern is looking to materialize on Bitcoin’s daily price chart once again.
So it appears, the cryptocurrency’s 20-day exponential moving average (20-DMA) is hinting to close below its 50-day simple moving average (50-DMA) in the coming sessions. The formation would mark Bitcoin’s first 20-50 crossover since March 2020.
Why 20-50 Death Cross?
A Death Cross pattern typically indicates the possibility of a significant sell-off. Traders for decades have used the technical indicator to predict some of the most severe bearish markets, including the 2008-09 financial crisis, and the dotcom bubble.
Chart watchers confirm a Death cross pattern typically when a 50-day moving average closes above a 200-day moving average. Nevertheless, the 50-200 crossovers generally are lagging indicators – they appear after an asset undergoes major downside moves.
Bitcoin price chart on TradingView.com showing its recent 20-50 Death Crosses. Source: TradingView.com
Using a 20-50 crossover allows traders to predict an asset’s trend in real-time. The Death Cross’s last appearance on the Bitcoin chart, for instance, led to an immediate downside correction of 55 percent.
The same happened following the 20-50 crossover in November 2019. The bitcoin price crashed by as much as 28.76 percent shortly after painting a Death Cross pattern. Meanwhile, an uncanny fractal from July 2019 also resulted in a downside price correction of 23.03 percent.
The eerily similar outcomes point to the same bearish moves in the Bitcoin market as its next 20-50 Death Cross materializes.
A Golden Cross on Bitcoin Weekly Chart
There is a massive likelihood of Bitcoin heading lower towards or below $9,000 on the daily chart’s Death Cross sentiment. Nevertheless, the downside move may not last for an extended period as a dissenting Golden Cross forms on Bitcoin’s weekly charts.
Bitcoin price chart on TradingView.com showing its upcoming 20-50 Golden Cross formation. Source: TradingView.com
A Golden Cross is a polar opposite of a Death Cross. The pattern surfaces when an asset’s short-term moving average closes above its long-term moving average. Bitcoin is less than $40 away from painting the 20-50 bullish crossover on its weekly chart.
A fractal from mid-2019 shows that bitcoin tends to rise after a 20-50 Golden Cross formation. The cryptocurrency surged by circa 69 percent weeks after the pattern’s occurrence in May 2019.
That leaves Bitcoin in a long-term bullish bias. While it may correct lower – possibly towards its interim support target in $8,000-8,600 area, it could eventually resume its uptrend towards $10,000. That may lead to a breakout towards or above $12,000.
Charts from TradingView.com