- 06/09/2023 11:48:06 GMT
- The daily chart for Bitcoin appears poised to exhibit a significant bearish technical pattern known as a ‘death cross,’ marking its first occurrence since January 2022.
- Historical data indicates that relying solely on the death cross as an indicator may not be consistently reliable.
- The ongoing strengthening of the U.S. dollar and prevailing macroeconomic developments are indicative of challenging times ahead for high-risk assets, including cryptocurrencies.
It appears that the Bitcoin (BTC) price is inclined to move in the opposite direction of the dollar index (DXY) lately.
The 50-day simple moving average of the primary cryptocurrency appears to be approaching a crossover below its 200-day SMA, signaling a ‘death cross.’ This marks the first such occurrence since January 2022. Conversely, the dollar index, which monitors the value of the U.S. dollar against major global currencies, seems poised to confirm the opposite pattern – a ‘golden cross.’
Bitcoin is on the verge of experiencing a death cross in the coming days, suggesting that short-term price momentum is lagging behind the long-term trend, possibly leading to the emergence of a bearish market trend. Additionally, Ether (ETH), the second-largest cryptocurrency in terms of market value, is also nearing a point where it may display a death cross.
Alex Kuptsikevich, the Senior Market Analyst at FxPro, mentioned in an email on Monday that a pattern like the ‘death cross’ could potentially materialize on the Bitcoin chart in the upcoming week. This signal implies a potential extended decline, highlighting the prevailing bearish trend.
Still, history shows that a bitcoin death cross is unreliable as a standalone indicator.
Historically, Bitcoin has experienced nine instances of the ‘death cross,’ with just two of them resulting in negative returns over three, six, and twelve-month periods. Out of these nine occurrences, Bitcoin traded lower one year after the ‘death cross’ on five occasions.
The impending ‘death cross’ coincides with the dollar index potentially achieving a ‘golden crossover,’ all within the context of a deteriorating macroeconomic outlook for high-risk assets.
In the coming weeks, the dollar index’s 50-day simple moving average (SMA) may surpass its 200-day SMA. A ‘golden crossover,’ often interpreted as the initiation of a bullish trend, is commonly associated with such an occurrence.
Bitcoin and other high-risk assets, such as technology stocks, typically exhibit an inverse relationship with the dollar index. Since mid-July, the index has surged by 5.3% to reach 104.90, its highest level since March 15, as reported by TradingView. During the same period, Bitcoin faced a 19% decline.
The International Monetary Fund (IMF) designates the U.S. dollar as the world’s primary reserve currency, dominating global trade, non-bank borrowing, and international debt. Consequently, a strengthening U.S. dollar imposes financial constraints globally, exerting downward pressure on high-risk assets.
The foreign exchange market has also been influenced by rising energy prices. The United States’ energy self-sufficiency and net exporter status position the dollar favorably in the context of increasing energy costs. Therefore, the principal threat to the dollar in the near term would likely arise from a significant reevaluation of growth prospects,” explained analysts at ING in a client note on Tuesday.
According to ING, as the U.S. economy continues to perform well, there is growing skepticism regarding expectations of rapid interest rate reductions by the Federal Reserve (Fed) in the coming year. The anticipation of a more dovish stance from the Fed partly contributed to Bitcoin’s recovery from its lows in 2022. The Fed has implemented rate hikes totaling over 500 basis points since March of the previous year.
ING also noted that the newfound consensus against swift rate cuts implies a higher trajectory for longer-duration U.S. Treasury yields. In simpler terms, this suggests the yield curve may experience a phenomenon known as “bear steepening” or de-inversion, a historical indicator of significant market shifts in high-risk assets.
Ilan Solot, co-head of digital assets at Marex Solutions, expressed cautious optimism for the cryptocurrency market despite acknowledging recent price fluctuations. He commented in an email, “I’m finally turning more constructive on crypto (yes, I see the prices), but I fear we must first get through a tricky inflection point on the macro side. The risk is a serious flush out of longer-dated yields and growth assets causing temporary re-coupling crypto as the new sock puppet proxy for quant traders.”