Following one of the most difficult periods in Bitcoin history, investors of the largest virtual currency are now confronted with an alarming fundamental pattern in the data with a name that indicates more agony is on the way.
The metric, known as a mortality cross, appears when a stock’s average cost over the past 50 days falls below its 200-day long-term average, indicating that its momentum is declining. As per Mati Greenspan, founder of Quantum Economics, while it hasn’t happened yet for Bitcoin, it appears to be on track to do so later this week. He remarked, “The chart is quite obvious.” Bitcoin rose 2.6 per cent at roughly $42,813 in New York, escaping the death cross for another day. It has only experienced three up times since the calendar year began until Tuesday. Ether, the foremost digital coin by market capitalization, appears to be on the verge of forming a death cross, despite trading higher on Tuesday to roughly $3,233.
Something’s Not Right
“The history is pretty mixed,” Juthica Chou, head of OTC trading options at Kraken, said on Bloomberg’s “QuickTake Stock” show, “which is no surprise considering that some of the macro backgrounds are effecting price movements, but we’ve seen a significant comeback over the last 24 hours.” “And I believe the foundations are still quite robust,” he adds. Before Tuesday’s respite, cryptos were under stress over the last week, with Bitcoin falling more than 30% from its November peak of almost $69,000. The latest decline in digital assets comes as expectations build that policymakers will start raising interest rates as soon as March — but it was just one of many moves they’ll take to remove liquidity. Speculative investments lose their allure in such a climate. Only 5% of JPMorgan Chase & Co. customers believe Bitcoin will reach $100,000 by the end of 2022.
Although the indication is intended to be gloomy, Bitcoin’s track record with death-cross formations is mixed. It created the ominous-sounding formation in June of last year, and another in March 2020 proved no obstacle to profits, as it moved upward and formed a golden cross (when the trend is reversed) two months later. Nevertheless, a death cross in November 2019 resulted in the coin’s price falling a month later.
“Some say it’s bearish, but for Bitcoin, just about every prior death cross or golden cross, along with any other indication under the sun, has proven to be a terrific buying opportunity for everyone who entered before 2021,” Greenspan added. According to Craig W. Johnson, chief market technician at Piper Sandler & Co., if a death cross occurs in the wider market indexes or equities, most, if not all, of the negative news has already been priced in. “At this point, I believe BTC has a greater danger of time than price.”
Meanwhile, the International Monetary Fund has issued a new warning, stating that comparisons between cryptocurrency price movements and stock market price movements might put financial markets at risk. According to the multi-nation organization, the correlation between U.S. stock indices and Bitcoin increased from 0.01 in 2017 to 0.36 in 2020. Analysts have long observed that Bitcoin, and hence other cryptocurrencies, move in lockstep with stocks. That link has been strengthening recently, and it was on full show on Tuesday, with both markets and crypto recovering recent losses to trading upward by the afternoon. Both have been unstable recently, owing to hints that the Federal Reserve is comfortable reducing stimulus quicker than expected.
Bitcoin had 500 have a 100-day correlation coefficient of 0.44 right now. This is the highest figure since the fourth quarter of 2020, and one of the highest in the past decade. A coefficient of 1 indicates that the assets are travelling in the same direction, whereas a coefficient of -1 indicates that they are moving in different directions. In a Tuesday paper, researchers noted that the rising interconnectivity across asset classes “allows the propagation of shocks that might disrupt financial markets.” Officials are particularly worried as more emerging-market economies, such as El Salvador, adopt cryptocurrency as legal cash.