The impending event concerning Bitcoin’s death cross has, unsurprisingly, collated mixed opinions within the crypto community. Death cross is a jargon in technical analysis, indicating a bearish signal where short-term price momentum drops below the long-term – typically identified when the 50-day simple moving average (SMA) crosses beneath the 200-day SMA. This impending death cross, forecasted to happen in the ensuing days, will be the first since January 2022.
On the one hand, this scenario signals protracted decline, as it accentuates the bearish trend lurking within the market. This viewpoint is underpinned by the strengthening U.S. dollar and perilous macro developments, predicted to inevitably bring about turbulence for digital currencies. This potential for decline is equally valid for Ether, the second largest cryptocurrency in terms of market value, as it too is flirting with a possible death cross.
In stark contrast, the dollar index, a gauge of the greenback against major global currencies, is on the path to confirming a golden cross – sort of a counterpart to the death cross, representing the beginning of a bull run. This runs almost counterintuitive to Bitcoin, as it is widely known that Bitcoin and other risk assets such as tech stocks usually display inverse correlation with the dollar index.
On the other hand, dwelling into historical data, uncovers an interesting pattern – Bitcoin’s death cross appears to be untrustworthy as a lone mark of decline. Out of nine previous death crosses, only twice did Bitcoin yield negative returns over three, six, and 12-month spans. In more explicit terms, only five out of the nine instances saw Bitcoin’s worth descending a year post the death cross.
Accelerating energy prices seem to have significantly influenced the foreign exchange market. The U.S., being energy independent and a net exporter, has the dollar positioned advantageously. This status quo, coupled with U.S. economy’s strong performance, has caused stirrings of doubt regarding expectations of swift rate cuts by the Federal Reserve in the coming year. Therefore, anticipation of slackening inflation is currently guiding Bitcoin’s rebound from 2022’s lows.
With speculation of the yield curve experiencing a bear steepening, which essentially signals major crises in risk assets, experts have started believing that the route of minimum resistance for long-term U.S. Treasury outputs is now higher. This, along with prolonged high interest rates, could swing the market towards risk aversion, causing temporary re-coupling of cryptos.
To discern the immediate future of Bitcoin, along with various other cryptocurrencies, we lie on the precipice, straddling the bullish and bearish camps, awaiting tangible signs of impending market trajectory. The crypto community stands divided on either side of the aisle, united by uncertainty and anticipation.
Source: Coindesk
