Another Week, Another Bitcoin Death Cross

  • Technical price chart analysts will note that Bitcoin has re-formed a “death cross” which could see the cryptocurrency’s price head lower 
  • Limitations for analyzing Bitcoin on a technical level remain, with past incidences of the “death cross” being formed a prelude to sharp rebounds and rallies 
 
Two weeks ago, Bitcoin’s “death cross” formed – when its 50-day moving average fell below that of its 200-day moving average, a formation on price charts used by technical analysts to indicate a sharp bearish move downwards.
 
And had traders used that signal to short Bitcoin, they would have been burned badly – as Bitcoin never quite threatened to fall below the US$30,000 level of resistance, rebounded sharply and rallied hard to US$41,000.
 
But with Chinese provinces all moving in unison to clamp down on cryptocurrency mining activities, markets have been flooded by sellers, and Bitcoin is once again forming a “death cross” – will bears get it right this time?
 
The trouble with technical indicators is that when it comes to a market as volatile and speculative as Bitcoin, they can lure traders into a false sense of certainty in a nascent asset class where there is nothing but uncertainty.
 
In March 2020, Bitcoin’s “death cross” posed no impediment to its relentless rally as gains in the benchmark cryptocurrency saw it create a “golden cross” formation – a highly bullish pattern, almost immediately thereafter. 
 
And there’s also reason to believe the “death cross” formation this time round may not necessarily be bearish, given that the 200-day moving average is still rising.
 
Bitcoin fell sharply yesterday on news that Beijing looks to be closing the last remaining loopholes left on cryptocurrency trading, summoning officials from its biggest banks to a meeting to reiterate a ban on providing cryptocurrency services.
 
The thing about China is that that which is banned, is often more desired than ever.
 
From VPN services that are used to vault the formidable Great Firewall of China and access content that Beijing would rather its citizens not consume, ever since the Chinese Communist Party first ruled the vast reaches of the Middle Kingdom, China has developed a strong culture of ostensible obedience, but covert comeuppance.
 
A popular Chinese saying goes “China is vast, and the Emperor is far away.”
 
And interestingly, investors haven’t sworn off the cryptocurrency industry altogether, with large flows heading into stablecoins like Tether and USDC, a sign that there is plenty of dry powder should there be a market catalyst for a sharp rally.
 
Investors are understandably skittish, what with the Fed promising earlier-than-expected hawkishness and a general risk-off sentiment.
 
Because Bitcoin in particular, and cryptocurrencies in general, are still viewed as a risky asset, any sort of uncertainty is sufficient to dent sentiment, in what is still very much an unconstrained asset, driven in large parts by speculation and narrative. 
 
 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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