What is a death cross?A death cross is when an asset’s average price over the last 50 days falls below the asset’s 200-day moving average. In general, it is an indication that the asset’s price is turning bearish. A death cross is usually followed by a long-term uptrend in the market. Bitcoin recently formed a death cross following news that China is tightening cryptocurrency policy and Elon Musk’s changing views on Bitcoin.
What happens to Bitcoin when a death cross form?This week, the price of Bitcoin dropped by about 11% following China’s announcement of a crypto ban. A meeting between officials from the biggest banks in China took place to reiterate a ban on providing cryptocurrency services. Users have been warned against transacting in Bitcoin as they risk bank account closure and being reported to relevant authorities. In other recent news, China is also clamping down on crypto mining.
This is not the first time Bitcoin formed a death cross and will certainly not be the last. The Bitcoin death cross from November 2019 saw the price trade lower one month later. However, the death cross from March 2020 quickly turned around and formed a golden cross.
Now a golden cross is a very good sign! A golden cross is the opposite of a death cross and is a bullish indicator. It occurs when an asset’s 50-day moving average crosses above its 200-day moving average.
What can investors do?Seasoned traders use the death cross and golden cross indicators to buy and sell cryptocurrencies. When a death cross forms, it may be a good idea to sell and when a golden cross form, it is time to buy as the price is likely to go up.
However, no technical analysis indicator is perfect. The current death cross may develop and follow the death cross pattern from either November 2019 or March 2020. It would be best to use a variety of indicators to guide your actions. The MACD, RSI, Bollinger bands, Fibonacci Retracement levels and others are examples of these.
Matt Maley, chief market strategist for Miller Tabak + Co., has recently been quoted in the media saying “the formation this time around might not be as bearish of a signal…” He attributed this to the fact that the 200-day moving average is still rising. Until that golden cross start forming, it is best to register an account with AltCoinTrader, ensure your 2FA is activated and start depositing funds. This way you can buy your favourite cryptocurrencies on South Africa’s favourite cryptocurrency exchange.