Monday, January 24

Bitcoin’s death cross is staring at the bulls after a painful pullback

After one of the most difficult times for Bitcoin enthusiasts, holders of the largest digital currency are faced with a sinister technical price pattern with a name suggesting more pain ahead.

Known as the death cross, the measure appears whenever the average price of an asset over the past 50 days falls below its 200-day moving average, an indication that its momentum is heading lower. And while it hasn’t happened for Bitcoin yet, it appears to be on track to catch up later this week, according to Mati Greenspan, founder of Quantum Economics.

“The graph is pretty clear,” he said.

Bitcoin avoids forming the death cross for another day, climbing 2.6% to around $ 42,813 at 2:44 p.m. in New York. Before Tuesday, it had logged only three days since the new year began. Ether, the second-largest digital token by market value, also appears to be on its way to forming a death cross, although it also traded higher at around $ 3,233 on Tuesday.

But when it comes to the death cross, “the story is really mixed – not surprising given that some of the macro context is affecting price action, but we’ve seen a healthy rebound in the last 24 hours,” Juthica Chou, boss of OTC options trading on Kraken, he said on Bloomberg’s “QuickTake Stock” broadcast. “And I think the fundamentals are still very strong.”

Before Tuesday’s reprieve, cryptocurrencies had been under pressure in recent weeks, with Bitcoin falling more than 30% since peaking at nearly $ 69,000 in November. The latest leg to the downside for digital assets is occurring as the odds rise that policymakers could start a series of rate hikes as early as March, and that’s just one of several steps they are willing to take. to take to eliminate liquidity. In such an environment, speculative investments lose their luster. Only 5% of JPMorgan Chase & Co. clients now forecast Bitcoin to hit $ 100,000 by the end of 2022.

The indicator is supposed to be bearish, but Bitcoin’s track record around death cross formations remains murky. It marked the bleak-sounding pattern in June of last year, and another in March 2020 proved no deterrent to gains as it rose and formed a golden cross (when the pattern reversed) two months later. But a death crossover in November 2019 sent coin trading down a month later.

“Some people say it is bearish, but for Bitcoin, almost all previous death crosses or golden crosses have proven to be a good buying opportunity, along with any other indicator under the sun for everyone who entered before 2021.” Greenspan said.

Whenever a death crossover has occurred in broader market stocks or indices, most, but not all, of the bad news has already been discounted, says Craig W. Johnson, chief market technician at Piper Sandler & Co “I think time could be a bigger risk for BTC than price at this point.”

Meanwhile, the International Monetary Fund issued the latest warning that parallels between cryptocurrency price movements and the stock market could pose a risk to financial markets. The correlation between the US stock indices and Bitcoin jumped to 0.36 in 2020, up from 0.01 between 2017 and 2019, according to the multinational organization.

Analysts have long noted that Bitcoin, and therefore other cryptocurrencies, tend to move alongside stocks. Lately, that relationship has strengthened and was even shown on Tuesday, with stocks and cryptocurrencies reversing morning losses to trade higher in the afternoon. Both have been volatile recently amid signs that the Federal Reserve was comfortable withdrawing stimulus at a faster pace than previously anticipated.

The 100-day correlation coefficient for Bitcoin and the S&P 500 is currently 0.44. That’s the highest reading since the fourth quarter of 2020 and among the highest in a decade. A coefficient of 1 means that the assets are moving in unison, while negative 1 would indicate that they are moving in opposite directions.

The growing interconnectedness between asset classes “allows the transmission of shocks that can destabilize financial markets,” analysts said in a report Tuesday. Officials are especially concerned as more emerging market economies embrace cryptocurrencies as legal tender, notably El Salvador, which adopted Bitcoin as a form of payment last year.

© 2022 Bloomberg

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