Bitcoin’s Unreliable Death Cross Is Looming Again

Bitcoin price is eyeing the death cross formation that trapped bears on the wrong side of the market last September.

BTC’s near-term prospects are closely tied to the health of the US economy and the volatility of the Japanese yen.

Some indicators are inherently lagging and offer limited predictive power, but they consistently make headlines in traditional and cryptocurrency markets, creating unnecessary panic among inexperienced investors.

One example is the bitcoin {{BTC}} death cross, which tends to spark increased fear and impulsive reactions on social media despite its poor track record of accurately predicting future price trends. So get ready, because it looks like one is on its way.

A death cross occurs when the 50-day simple moving average (SMA) of an asset’s market price crosses below the 200-day SMA. Currently, the 50-day SMA of bitcoin price is at $62,332 and falling, indicating a possible cross with the 200-day SMA at $61,605.

The impending crossover suggests that short-term momentum, represented by the 50-day SMA, is underperforming the long-term average.

This development is widely interpreted as a bearish signal and leads to catastrophic scenarios — a cognitive distortion that often leads inexperienced investors to jump to the worst possible outcome with limited information and understanding. Overreaction is typical, especially when sentiment is already bad, as is the case in the BTC market. The cryptocurrency is down more than 20% in a week, to $55,000, according to CoinDesk data.

In reality, the chart pattern only shows the nature of price action over the last 50 days. It does not guarantee that future movements will continue in the same direction.

The previous death cross confirmed on September 12, 2023 was a major bear trap. BTC dropped to as low as $24,900 on the same day and never looked back, eventually reaching new record highs above $70,000 in March of this year. Traders who positioned for further declines were caught out.

As CoinDesk covered last year, the records of the previous nine death crosses have been mixed, with only five of them heralding long-term downtrends.

To summarize, the death cross is not reliable as a stand-alone indicator. Bitcoin’s near-term prospects are largely dependent on US economic data and Japanese yen volatility. Continued demand for yen in forex markets could further weaken carry trades and keep risk assets, including BTC, under pressure.

BTC daily chart (TradingView)