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Bitcoin’s 40% sell-off from its mid-November high amid a hawkish pivot from the Fed puts it on track to trigger a so-called death cross, a bearish technical signal that suggests more downside ahead.
A death cross occurs when the shorter-term 50-day moving average crosses below the longer-term 200-day moving average. That crossover signal is widely followed by technical analysts and traders.
With bitcoin’s 50- and 200-day moving averages just $1,000 apart as of Tuesday morning, it is highly likely that the death cross signal will be generated over the coming days. Bitcoin’s 50-day average is falling fast, while its 200-day average is slowly rising.
The lagging indicator can help alert traders to securities that are solidifying their downtrend and are likely to experience a continuation, resulting in lower prices. Bitcoin last flashed a death cross in June 2021, when prices went on to fall nearly 20% before bottoming a month later.
But bitcoin is notoriously volatile, and previous moving-average crossovers have also led to several head fakes. In February 2020, a bullish golden cross in bitcoin flashed right before prices fell as much as 56%. And a bearish death cross in March 2020 occurred two weeks after bitcoin prices bottomed.
If the imminent death cross in bitcoin proves to be a successful trading signal, one logical area of support is $37,400, according to technical analyst Katie Stockton of Fairlead Strategies. A move to that level would represent downside potential of 10% from current levels.
In a Monday note, Stockton highlighted that bitcoin is throwing off both bearish and bullish signals on an intermediate- and long-term basis, respectively.
“If the monthly MACD indicator flips to a ‘sell’ signal, we would view that as a precursor to a breakdown and impetus to reduce long-term exposure,” Stockton said.
The MACD indicator, short for moving average convergence/divergence, tracks moving averages but is separate from the traditional death cross between the 50-day and 200-day moving averages.
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