Death Cross Appears on Bitcoin Charts, But It May Mean Nothing at All

[Cristiano]

Both Crypto- and non-Cryptospheres are discussing a "death cross" that appeared on bitcoin (BTC) charts, which is seen by some traders as a bearish signal that indicates lower prices to come. However, it seems there is no actual proof that death cross means or "confirms" anything that is about to happen, but is instead displaying what has already been set in motion.

The media, traders, charters, analysts, and other insiders are keeping a close eye on the charts, after bitcoin has formed a death cross - which means its average price over the last 50 days descended below the price of its 200-day moving average (MA).

While a golden cross allegedly indicates a bull price movement, the death cross is a technical chart pattern that, as some believe, indicates the potential for a major sell-off. The name comes from the X shape which is created when the short-term moving average drops below the long-term moving average.

This follows a number of announcements from China that may prove to be detrimental for the crypto industry. Chinese central bank said that all the nation’s biggest commercial banks, as well as the giant Alipay, have agreed to help it enact a stronger crackdown on crypto, while many major mining farms in the vital province of Sichuan are set to close as well.


Jeffrey Kleintop, Chief Global Investment Strategist for Charles Schwab & Co., is quoted by Bloomberg as saying that this crackdown "perhaps does take away some of [BTC's] luster," adding that it can certainly create some volatility. "No one is sure the extent of the crackdown and China is an important player in the Bitcoin market," he said.

That said, this death cross may not signal that much pain to come at all.

"There has been much talk of the “death cross” as BTC 50-day moving average crosses below its 200-day moving average, yet there is no statistical evidence as this event being a sell signal," wrote Jeff Dorman, the Chief Investment Officer (CIO) of US-based investment management firm Arca.

Also, according to Financial Markets Operator at Quantum Economics, Imran Yusof, the death cross "doesn’t presage anything," including the beginning of a downtrend. He argues that MAs are lagging indicators, while MA crossovers - which are very important to some, particularly mainstream financial news media - are merely lagging indicators of lagging indicators. A lagging indicator, such as the simple moving average, is a financial signal that occurs only after shifts in the underlying price had already happened.

Therefore, said Yusof,

"This means lagging indicators serve only to confirm a trend that is already underway. They do not predict trends."

Another reason why moving average crossovers are not that useful, per Yusof, is that different exchanges and charting service providers have their own proprietary sources for price data, and these sets of data can lead to a similar shape on charts over the same time period, but with MAs not crossing at the same time - so which chart is one to look at?

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