They call it Bitcoin’s “death cross” – a bearish indicator which appears when the 50-day moving average (MA) dips below the 200-day MA.
The ominously-named chart pattern looks set to be confirmed this week amid mounting concerns of faster liquidity withdrawal by the U.S. Federal Reserve (Fed), a bearish development for bitcoin and asset prices, in general.
Goldman Sachs foresees the Fed raising borrowing costs at least four times by the end of 2022 versus the previous prediction of three rate hikes, according to Bloomberg. The investment banking giant also expects the central bank to downsize its balance sheet from July.
Friday’s U.S. labor market report, which showed that unemployment rate dipped to 3.9%, has strengthened the case for the Fed to hike rates concurrently with the end of asset purchases in March. According to the CME Group’s FedWatch Tool, investors were pricing a 73% probability of a 25 basis point rate hike in March, up from 61% last week.
Fears of a hawkish Fed gripped the bitcoin market towards the end of last quarter after the central bank shifted its focus to inflation control from maximum employment. In December, the Fed announced at least three rate hikes by the end of 2022 and an end of the asset purchase program by March.
Bitcoin peaked near $69,000 on Nov. 10 and has declined nearly 40% since. The cryptocurrency slipped over 12% in the last seven days to Jan. 9, registering its biggest weekly drop since early December. The impending death cross, coupled with the souring macro outlook, may bolster overall bearish sentiment.
That said, the technical indicator’s past record as a predictor of bear markets is mixed. According to research by Kraken, many of bitcoin’s previous death crosses, including those seen in 2014 and 2018, coincided with “either a sell-off in the days that followed or a continued macro downtrend that confirmed a bear market.”
However, death crosses witnessed in June 2021, late March 2020, and October 2019 were bear traps or false signals that marked major price bottoms. The consolidation seen after the mid-June 2021 death cross resolved in a fresh bull run, as seen in the featured image.
Moving average crossovers are unreliable as standalone indicators, given they are based on backward-looking data and tend to lag prices. The market is often oversold and due for a bounce by the time the crossover is confirmed, as was the case in June last year and late March 2020.
At press time, bitcoin was changing hands near $42,100, representing a 0.5% gain on the day.
All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.
Recommended Content
Editors’ Picks
Trump-inspired memecoin MAGA shows bullish on-chain metrics ahead of US elections
MAGA trades slightly down to around $3.4 on Tuesday after rallying more than 20% since Sunday. The former President Donald Trump-based memecoin is poised for further gains as daily active addresses and network growth metrics rise, signaling increased network usage and adoption.
Bitcoin ETFs beat Gold ETFs with 65% gain since launch
Bitcoin ETFs have reshaped the digital asset investment landscape since their approval in January. Their total assets under management climbed over $70 billion during the weekend, placing them ahead of other investment products, including gold.
XRP eyes 10% rally amid relisting across crypto exchanges and growing institutional demand
Ripple's XRP is trading at $0.5050 up slightly by 0.2% in the past 24 hours as it struggles to sustain a move above a key symmetry triangle resistance. Meanwhile, in its recently released Q3 report, Ripple noted the rising listing and relisting of XRP across crypto exchanges and global platforms.
Ethereum Price Forecast: ETH struggles below $2,500 amid State of Michigan pension fund investment in ETH ETF
Ethereum is trading near $2,420, down about 1% on Monday, but could bounce off a key descending trendline close to the $2,258 historically high demand zone. Meanwhile, the State of Michigan pension fund revealed an investment of $11 million in ETH exchange-traded funds.
Bitcoin: New all-time high at $78,900 looks feasible
Bitcoin price declines over 2% this week, but the bounce from a key technical level on the weekly chart signals chances of hitting a new all-time high in the short term. US spot Bitcoin ETFs posted $596 million in inflows until Thursday despite the increased profit-taking activity.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.