Anybody who has been trading for a while would have some idea what a death cross or a golden cross is. The death cross is as ominous as it sounds, it means that the market is losing steam and will probably result in more downside. While the golden cross is the exact opposite. The Bitcoin daily chart is about to form a potential death cross and a lot of investors are looking at this closely and cautiously. On the other hand, the DXY, or the US Dollar Index is about to form a potential golden cross.
Should we panic? How reliable are these indicators? What exactly are these indicators? Let us find out together.
What is a Death Cross and a Golden Cross?
The golden cross and the death cross are two patterns that show up on a trading chart when two lines cross each other, thus forming a “cross”. These lines are called moving averages (MA), which show the average price of an asset over a certain period. Most traders use the 50 and 200 MA to determine a cross formation.
A golden cross happens when the shorter moving average crosses above the longer moving average. This means that the price is going up faster than the average and it is a sign of a strong upward trend. Most traders believe that this is a good buying opportunity.
A death cross happens when the shorter moving average crosses below the longer moving average. This means that the price is going down faster than the average and it is a sign of a strong downward trend. Most traders would sell assets when this happens.
What is the DXY?
Most of us know what a Bitcoin is, However, not everybody is aware of the DXY. Those who know what it is do not usually monitor its movement.
The DXY or the US dollar index is used to monitor the strength of the greenback. It is the value of the US dollar against a basket of other foreign currencies.
Monitoring it is important because there is a historical inverse correlation between Bitcoin and the dollar. When the DXY goes up, Bitcoin goes down, and vice versa.
For those using TradingView just search for DXY and it should show up.
The Bitcoin Death Cross
The chart above clearly shows that we are about to see a potential death cross. Take note of the word “potential”. Because it is still possible for the 50 MA to pivot up before it crosses or immediately pivot up after touching the 200 MA.
So what happens when it crosses? It depends, in the very short term it will probably go down. How low? It is anybody’s guess. We can draw Fibonacci retracements and draw support lines, but these are just educated guesses.
CoinDesk collated the past daily death crosses and this will give us an idea of the potential outcomes.
What does it tell us? It seems like it is a toss-up. BTC performed negatively 5 out of 9 times after a death cross. It does not matter if it is measured after 3, 6, or 12 months. Conversely, BTC gained in value 4 out of 9 times. According to the table, there was even a 715% increase a year after a death cross.
The DXY Golden Cross
The DXY has been pumping recently and there is a potential golden cross forming. Remember, if the DXY pumps, BTC dumps.
However, Coinskid, a popular technical analysis, sees an upcoming resistance that could reject the DXY pump. He believes that the 105.6 level which was formed from a swing high could potentially stop the DXY from going up. He reckons that BTC will pump after the DXY rejection.
CNB’s Opinion on Bitcoin
First, nobody can predict the future with 100% certainty. Lao Tzu, a Chinese Taoist philosopher said “Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” What we can do is guess according to the data that we see.
Second, the 25k level is still the support to break. We have discussed this in a previous article. But just to recap, 25k has rejected BTC twice and has been tested as support once. It is also currently being tested for the second time.
The chart above shows the 25 level acting as support and resistance. If the death cross happens and FUD spreads across the market, it is possible that it will be broken. It would also create a double-top pattern with a sub-20k target. BTC has formed a strong base at the 19-20k level. So this is a support to watch out for. It also coincides with the 0.786 Fibonacci level.
We also need to take note that the lines of the moving averages can also act as support and resistance. So watch out for these lines.
Should We Buy or Sell Bitcoin?
If you are looking for a definitive answer, then this is not the right place. If somebody says that they can give you a 100% accurate prediction, then it is either they have a time machine or they are lying. The best we can do is base our decision on the data available.
Some analysts are saying that we are still in the bear market and this BTC death cross confirms it. While some are saying that we are in the early phase of the bull cycle. Who should we believe? We don’t know. But if you believe in Satoshi’s vision then accumulating Bitcoin is not a bad idea at all. But when is the best time to accumulate? Maybe this quote from Baron Rothschild is an appropriate answer:
“Buy when there’s blood in the streets, even if the blood is your own.”
The information provided in this article is for informational purposes only and should not be considered financial advice. The article does not offer sufficient information to make investment decisions, nor does it constitute an offer, recommendation, or solicitation to buy or sell any financial instrument.
