The price of Bitcoin approaches a Death Cross

The recent collapse in the price of Bitcoin has brought it closer to a new Death Cross.

In this specific case, the Death Cross is the moment when the 50-day simple moving average (SMA) falls below the 200-day SMA. 

The 50-day SMA of the Bitcoin price is currently around $62,300, while the 200-day SMA is around $61,600.

However, while the 50-day SMA is rapidly declining, given that the price is well below $62,000, the 200-day one is still rising. 

The approach of the Death Cross of the Bitcoin price 

A month ago the 50-day SMA was even higher than $66,000, while the 200-day one was lower than $58,000.

Since then, while the second has continued to rise, the first has started to fall. 

In mid-July the first had already dropped to about 64,000$, while the second had risen to almost 59,000$. 

So actually it has been about a month that the 50-day SMA has been falling, approaching the 200-day SMA which for now is still rising. 

The approach has accelerated in the last two days, as yesterday the first had dropped to 63,000$, while the second had risen to almost 61,000$. 

At this rate, the overtaking should happen between Saturday and Sunday. 

The effect of the Death Cross on the price of Bitcoin

Generally, the formation of a Death Cross has no direct impact on the price.

It is in fact information that is purely statistical, processed retrospectively. 

However, it can affect market sentiment, because there are quite a few traders who use statistical parameters like this to make their evaluations. 

Even in this case, however, it is a parameter with such a minimal impact that it is now considered to be approximately zero. 

However, the sentiment can be influenced by a similar occurrence, because it is closely linked to the emotions of retail operators. 

This suggests that, on the one hand, it is not possible to know what realistic impact a Death Cross could have on the price of Bitcoin, but it is possible to assume that it could have a negative impact on market sentiment, and in particular on the value of the Fear & Greed index.

The fact, however, that it seems a few more days must pass before a Death Cross occurs suggests that the influence on sentiment might only be felt over the weekend. 

The short-term prospects

All this suggests that retail buying pressure in the short term could continue to remain very low. 

It should be noted that in recent days the selling pressure does not seem to have increased significantly at all. Yesterday’s collapse, for example, was largely caused by automatic liquidations forced by the exchanges to prevent leveraged long positions in loss from generating losses greater than the invested capital. 

The buying pressure, however, is low and has dropped significantly in recent days, and a potential Death Cross would only keep it so low. For retail buying pressure to increase, sentiment needs to stop being so negative. 

However, the purchases of institutional investors should not be underestimated, as they might also decide that this is a good time to accumulate. However, if they decide to do so, they would probably do it in a way that impacts the price as little as possible, precisely to keep it low. 

The medium/long-term prospects

The simple moving average at 200 days is still sufficiently high to suggest that the medium/long-term trend could also continue. 

In particular, autumn could be the key moment in which a bull could occur. 

However, there are still three months to go until the USA elections on November 5, and in these three months anything can still happen.

It should not be forgotten, however, that markets tend to anticipate events, and something could already happen in September with the Fed’s rate cut.

Therefore, while the short-term prospects do not yet seem good, in the medium/long term the reasoning changes completely. 

The bear trap

The last time a Death Cross occurred, in September of last year, it was in fact a perfect bear trap. 

Bitcoin ended up touching a bottom during that period just below $25,000, but by late autumn, it started a true bullrun that would first bring it back above $4,000, and then even above the previous all-time highs. 

It is not at all possible to exclude that a similar situation could repeat itself, also because this year the autumn could prove to be much more interesting than the summer for the price of BTC. 

In the nine previous cases of Death Cross on the price of Bitcoin, only five have turned out to be signals of prolonged bear trends, so even history suggests not to consider this event as a clearly and inevitably bear signal.