Death crosses are formed when an asset’s price falls below its 50-day moving average (MA) and the 200-day MA, and they are an indication of recent selling pressure, which causes the short-term average price to fall below the longer-term average price.
The world’s largest cryptocurrency, bitcoin, had a rocky start to 2022 after a strong but choppy year in 2021. The virtual currency fell from about $69,000 in November 2021, when it peaked at about $69,000, to about $40,000 today, almost at the level of the Death Cross.
When an asset’s price falls below its moving average (MA) for 50 days, the Death Cross is formed. Recent selling pressure has caused the short-term average price to fall, which is indicative of recent selling pressure.
Price analysts expect the cryptocurrency to continue to fall after the Death Cross appears. The drop is expected in a few days, even though the price has risen above $43,000.
Bitcoin is expected to find resistance at $45,000 on a technical basis. “RSI is still below 50, indicating that bitcoin is in oversold territory. During an upside move, the price may soar to the $45,000 level; however, if any missteps are made, prices may drop to $38,000-$36,000.,” Shivan Thakral, CEO, BuyUCoin told The Economic Times.
In a bid to combat high inflation, authorities are taking measures by sucking liquidity from the markets by hiking interest rates as early as March 2022. This has caused cryptocurrencies to decline amid speculation that interest rates will be hiked one after the other starting in March 2022.
Bitcoin last formed a Death Cross in June 2021. In March 2020, the same signal appeared, but it was soon overcome as the trend reversed and resulted in a Golden Cross (when the 50-day MA overtakes the 200-day MA) shortly thereafter.
As a result, Death Cross signals may not be reliable indicators of future downsides.
Markets have an elastic effect. The more rigorously the market drops, the more aggressively it rises, providing remarkable returns,” a spokesperson for the crypto exchange WazirX told The Economic Times.
Craig W. Johnson, Chief Market Technician at Piper Sandler & Co, sounded more pessimistic on BloombergQuint, telling the news service that in the past, appearing Death Crosses have usually been followed by worse news. “I think time could be a bigger risk to BTC than price at this point,” he added.
Bitcoin Correlation Coefficient
Additionally, analysts have noticed a correlation between stock and crypto movements on the charts. According to the International Monetary Fund (IMF), there was a 0.36 correlation between Bitcoin and the US stock indices between 2017 and 2020, up from 0.01 in 2017 and 2019.
Stock indices and Bitcoin currently have a 100-day correlation coefficient of 0.44, which indicates the amount of synergy. A value of 1 indicates a parallel movement, while a value of -1 indicates an absence of a relationship. (A value of 1 means there is no relationship between the two price movements.) It means that market shocks could be transmitted from equity markets to crypto markets.
Why A Weak Bitcoin Price Is Actually Good For The Market
Despite this, bitcoin miners are leveraging the massive price drop to accumulate assets, and, as a result, are holding more BTC than before. During the first two weeks of 2022, the amount of BTC held by miners increased significantly.
A dip in the price of Bitcoin is bought into and is viewed by passionate investors as a buying opportunity.
The fact that several mainstream financial experts predict that the virtual currency could rise significantly in value by 2022 — Goldman Sachs predicts a price of $100,000 — also helps.
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Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
