An important technical event has just occurred in the Bitcoin market. For the first time in over a year, the 50-day simple moving average (SMA), currently at $19,825, has just crossed above its 200-day MMS, currently at $19,723. When the 50-day simple moving average crosses above the 200-day simple moving average, technicians speak of a “ golden cross (golden cross), a sign of a significant positive change in market dynamics. Tuesday’s golden cross is just the seventh for Bitcoin in the past decade.
Some analysts consider a golden cross as a signal to buy, or at least include it in the series of technical indicators taken into consideration when making trading decisions. The 50- and 200-day SMAs are technical indicators widely followed by investors. This golden cross could therefore potentially lead to stronger buying pressure in the Bitcoin market, if it induces more buyers to enter the market.
Which direction for Bitcoin after the golden cross?
After the confirmation of the golden cross, many investors are wondering if this is a good buy signal. The answer is not necessarily. As we saw in a recent article, these events have a mixed history of success as a buy signal for Bitcoin.
If you had bought bitcoins at the time of each of the last seven golden crosses and had held them for 90 days, you would have earned on your investment four times out of seven. The margin of these gains would have varied greatly between 10 and 80%. One time out of seven, this investment would have remained neutral after 90 days, and on two occasions, your investment would not have been profitable and your losses would have been in the range of 20% to 45%.
If you had held your investment for 365 days, your investment would have gone up five times out of seven. Again, the magnitude of the gains over this period varies wildly, from 25% to 400%. The two occasions when you would have been down after 365 days coincided with the brutal bear markets of 2014 to early 2015 and late 2021 to late 2022.
If you only invest when a golden cross occurs after the 50-day SMA has been below the 200-day SMA for an extended period of time (i.e. after a Bitcoin bear market, not during a choppy bull market), the results are more bullish. An investment made 365 days after the golden crosses of July 2015, October 2015 and April 2019 would have delivered a return (approximately) of 130, 120 and 25% respectively.
As on those aforementioned occasions, the final golden cross occurred after the 50-day SMA had been below the 200-day SMA for an extended period. Given historical precedents, a 100% gain over the next year is on the cards. In other words, we could easily envision Bitcoin hitting $40,000 in early 2024.
A Death Cross on Bitcoin’s Weekly Chart Calls for Caution
To complicate matters, Bitcoin just experienced its first-ever “death cross” on weekly candles. Specifically, the 50-week SMA broke below the 200-week SMA for the first time in cryptocurrency history.
However, this is just one bearish signal among a growing list of bullish signals. Indeed, seven of the eight technical and on-chain indicators tracked by analysts at the crypto analytics firm Glassnode in their dashboard”Recovery from a Bitcoin Bear” indicate that the bottom has been reached. Separately, another key indicator tracked by the crypto analysis company CryptoQuantthe profit and loss (PnL) index, has just sent a definitive buy signal for the first time since 2019.
The positive technical and on-chain signs come as Bitcoin adoption continues, with the number of non-zero balance wallet addresses likely to hit a new all-time high soon. Furthermore, analysis of Bitcoin’s long-term market cycle, like a recent thread from @CryptoHornHairs and Bitcoin’s stock-to-flow pricing model, suggests the cryptocurrency is likely in the early stages of a multi-year bull market.
A threat to the recovery of this market is the possibility that the Federal Reserve US raises its interest rates to levels higher than those expected by the markets. Markets are currently betting on a further rate hike to around or just above 5.0%. But as the chairman of the Fed, Jerome Powell, announced on Tuesday, if the US labor market remains as strong as it has been lately, some tightening may be needed. However, we are still only talking about a potential hike of another 100 basis points this year, much less than the 400 basis points seen in 2022.
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