The bitcoin price is currently facing the ominous “death cross,” a pattern that has historically caused panic among investors. But before we jump to conclusions, let’s understand what this indicator really means.
What Is a Death Cross?
A death cross occurs when the 50-day simple moving average (SMA) of an asset’s market price falls below the 200-day SMA. In the case of Bitcoin (BTC), the 50-day SMA is currently at $62,332 and declining, potentially crossing below the 200-day SMA at $61,605.
The Bear Trap Scenario
However, here’s the catch: the death cross is not a reliable predictor of future price trends. In fact, it often leads to overreactions and unnecessary panic.
#Bitcoin Daily
We are still stuck in a bearish market structure until we show clear signs of reversal around $55-$60k level
Regardless, I am expecting ATHs by the end of this year pic.twitter.com/ageXWmNkEO
— TheoTrader 🏰 (@theo_crypto99) August 10, 2024
For instance, the previous death cross confirmed on September 12, 2023, turned out to be a major bear trap. BTC bottomed out at $24,900 on the same day and then surged to new record highs above $70,000 in March of this year. Investors who had positioned for further declines were caught off guard.
The Mixed Record
Historically, death crosses have had a mixed record. Out of the previous nine occurrences, only five actually led to prolonged downtrends, according to CoinPEdia.
What Lies Ahead?
Bitcoin’s near-term prospects depend on various factors, including U.S. economic data and volatility in the Japanese yen. Continued demand for the yen in foreign exchange markets may impact risk assets like BTC.
In summary, the death cross is unreliable, and we should approach it with caution. Rather than panicking, let’s keep an eye on broader market dynamics and make informed decisions.
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