How could the formation of a golden cross impact the price of Bitcoin (BTC)?


Bitcoin Golden Eyes. Source: Adobe

In light of the latest bull run that saw it jump over 40% year-to-date, Bitcoin is on course for its seventh “golden cross” in a decade. A golden cross is a technical event involving the crossing of the 50-day simple moving average (SMA) above the 200-day SMA. Some technicians and traders interpret this crossover as a buy signal, or at least as a sign that price momentum has shifted in a bullish direction.

Absent a sudden and sustained crash of more than 30% in the price of Bitcoin, the market’s largest cryptocurrency by market capitalization, Bitcoin’s 50-day SMA should cross above its 200-day SMA in about a week.

A “golden cross” is brewing for Bitcoin. Source: TradingView

Bitcoin price movements after previous “golden crosses”

Those who would have bought bitcoins at the time of each of the last seven golden crosses and who would have kept them for 90 days would have gained on their investment four times out of seven. The margin of these gains would have varied greatly between 10 and 80%. This investment would have brought no positive return one out of seven times and on two occasions, this investment would have resulted in a decline of around 20% to 45%.

If these bitcoins had been held for 365 days, the investment would have been profitable five times out of seven. Again, the magnitude of the gains over this period varies enormously, from 25% to 400%. The two instances of negative returns coincided with the brutal bear markets of 2014 to early 2015 and late 2021 to late 2022.

If an investor tailors the buy signal to buy only when a golden cross occurs at the end of an extended bear market (and not during a choppy bull market), the results are a bit different and bullish. An investor who bought and held their bitcoins for 365 days after the golden crosses in July 2015, October 2015 and April 2019, would have obtained (approximate) returns of 130, 120 and 25% respectively.

As in these aforementioned cases, the 50-day SMA is now below the 200-day SMA for an extended period. Let’s imagine that Bitcoin continues to trade around $23,000-$24,000 at the time of the next golden cross. A 100% gain over the next year is possible given past performance. We could therefore envision Bitcoin reaching around $40,000 in early 2024.

Bitcoin bear. Source: Adobe

The end of the bear market for Bitcoin?

Such a recovery in the price of Bitcoin over the next year is easy to imagine if we take into account certain factors.

First, 2023 is likely to be a year of easing financial conditions (a typically bullish event for crypto) rather than tightening (as 2022 was). Indeed, inflation appears to be falling rapidly, as acknowledged by the Federal Reserve Bank (FED) this week. The FED is considering ending its tight monetary policy and may even cut rates by the end of the year to support a US economy that could soon enter a recession.

Additionally, Bitcoin bear markets historically only last about a year and many technical and on-chain indicators are now indicating that the 2022 bear market has bottomed out.

At the same time, long-term trends regarding Bitcoin’s adoption by more users and investors remain positive, and the asset should soon gain greater legitimacy as regulators in key markets (like the United States, United Kingdom, and European Union) are working to put in place comprehensive crypto market legislation. A new golden cross is therefore added to a list of arguments explaining why the Bitcoin bear market is over.

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