The death cross is approaching again, can Bitcoin continue to reverse the wind?

After Bitcoin's worst start to the year (down more than 10% year-to-date at press time), holders of the largest cryptocurrency are now facing an ominous indicator of technical price patterns that suggest Bitcoin's prospects may not be rosy Very clear.

Known as a "death cross," the indicator occurs when an asset's average trading price over the past 50 days falls below its 200-day moving average, indicating that the asset's momentum is declining. Mati Greenspan, founder of Quantum Economics, said that while that hasn’t happened to Bitcoin yet, it looks like it will happen later this week, “with a very clear chart.”

As of press time, Bitcoin rose 2.20% to $42,652.19 per piece. So far in 2022, Bitcoin has only been up for three sessions. Although the second-largest cryptocurrency, Ethereum, rose to around $3,233 per coin on Tuesday, it also appears to be forming a death cross.

The death cross is approaching again, can Bitcoin continue to reverse the wind?

Juthica Chou, head of over-the-counter trading at cryptocurrency trading platform Kraken OTC, said of the death cross: “It’s not surprising that Bitcoin has had a really mixed performance over this period, given some of the macro backdrop that is affecting price action. However, we are in Still seeing a very healthy rally over the last 24 hours, I think the fundamentals are still very strong."

The cryptocurrency has been under pressure in recent weeks, with bitcoin down more than 30 percent since reaching a high of nearly $69,000 in November. As the likelihood of the Fed raising interest rates in March becomes more and more likely, crypto assets are experiencing a new round of declines; it is important to know that in addition to raising interest rates, the Fed has already communicated to the market that it may shrink its balance sheet ahead of schedule.

Under such aggressive tightening, speculative investments like bitcoin are being abandoned; only 5% of clients surveyed by JPMorgan expect bitcoin to hit 100,000 by the end of 2022 USD/pc.

Although the death cross is a bearish indicator, Bitcoin's historical record surrounding this indicator remains unclear. When the metric appeared in June last year, Bitcoin’s performance was dismal, but when it appeared last March, Bitcoin’s performance was very strong; and in November 2019, the appearance of the metric sent Bitcoin lower.

Mati Greenspan said: “Some people say this (death cross) is bearish, but for Bitcoin, almost all previous death or golden crosses have proven to be a good buying opportunity. For all of them in 2021 Any other indicator is a good buying opportunity for someone who has been in the bitcoin market before.”

Craig W. Johnson, chief market technician at Piper Sandler, said that whenever a broad-cap index or a stock has a death cross, most, if not all, of the bad news has already been priced in. “I think at this time, timing could be a bigger risk for bitcoin than the current price.”

Meanwhile, the International Monetary Fund (IMF) issued its latest warning that the parallels between cryptocurrency price movements and the stock market could pose risks to financial markets. According to the IMF, the correlation between the U.S. stock index and Bitcoin rose from 0.01 in 2017 to 2019 to 0.36 in 2020.

Analysts have long noticed that bitcoin and other cryptocurrencies tend to move in tandem with the stock market, and that link has been strengthened recently; both stocks and cryptocurrencies reversed early losses on Tuesday to trade higher in the afternoon . Both have seen volatility recently amid signs the Fed is willing to tighten policy faster than previously expected.

The death cross is approaching again, can Bitcoin continue to reverse the wind?

Currently, Bitcoin’s 100-day correlation with the S&P 500 is 0.44, the highest level since the fourth quarter of 2020 and one of the highest levels a decade ago. (A coefficient of 1 means that the assets move in the same way, and -1 means that the assets move in the opposite direction)

The growing interconnectedness between asset classes "enables the transmission of shocks that could destabilize financial markets," analysts said in a note on Tuesday. The increasing adoption of cryptocurrencies as legal tender in emerging market economies, such as El Salvador, is of particular concern.