On 7 February, a Bitcoin (BTC) “Golden Cross” occurred on the daily timeframe, and the first ever “Death Cross” on the weekly BTC/USD price chart quite soon after.
What are Golden and Death Crosses?
Both of these events involve the convergence of two major moving averages (MA). For those unfamiliar, a golden cross happens when a shorter-term moving average (often the 50-day) crosses above a longer-term one (frequently the 200-day) from below. And in the case of Bitcoin, when the 50-week moving average crossed the 200-week moving average downward, the Death Cross was triggered.
The terms will be familiar to anyone who has been around the markets, for any length of time. And technical analysis (TA) does suggest that when the short-term price is higher than the longer-term average it causes some bullishness; while it is extremely bearish for the 50-week MA to cross below a 200-week MA — hence the “death” part.
Although it is true that you need a fairly big positive or negative move in price for the moving averages to converge, the crosses are essentially indicating what you already know. If you hear the word ‘Golden’ most people naturally think that automatically it means higher prices, and ‘Death’, is undoubtedly a move to the downside.
With the crosses being lagging indicators, the question arises as to whether they are hyped in relation to the value that they provide?
Historical Market Data
First, let’s take a look at what happened during prior cycles, in different assets.
If you look back at historical market data, in the short term (i.e., just after a Golden or Death Cross occurs) price can actually do the opposite in relation to expectations. This includes a pump going into a Death Cross. Though, it should be noted that the length of any counter-trend rally is short-lived. Also observable, the general trend continues going higher or lower, so the occurrence of a cross is just a confirmation of the direction of the trend.
Focusing specifically on BTC, and Golden Crosses over prior cycles, the charts show that you always go through one cross to get into the next bull market. All major Bitcoin rallies in history have started with a golden cross: February 2012, October 2015, and May 2020. But note, it is not necessarily the rallying point in a recovery year!
The most recent Golden Cross is the first since September 2021, that’s nearly 18 months ago. Clearly, these events are not frequent but worthy of note due to their very infrequency.
Weekly BTC Chart
Switching to the weekly BTC chart, we had never quite witnessed a Death Cross before. Yes, the moving averages have come close to recording one but it has always been avoided, so far. Bitcoin narrowly avoided a death cross back in November 2015, when just $9.96 separated the 50-week and 200-week MAs.
When Bitcoin fell from a heady bull market into a stifling bear market sometime in late 2021 or early 2022 — the impending death cross was seen to solidify one of the most vicious reversals in its history.
In other assets, the charts show that the Death Cross sometimes does lead to downside movement, but also sometimes does not! If you study the S&P 500, during the 1970s/80s, Death Crosses does usually lead to a little higher percentage decrease, but by then you are well into a bear market, anyway. And again, in some years, the Death Cross has meant nothing.
Conclusion
In conclusion, a Golden or Death Cross is really just telling you something that you already know. It is a trend that is observable in the charts. They are actually very much lagging indicators. In the short term, the price action can actually do the opposite, such as a short-term dump after a Golden Cross. Though more often than not, a Golden Cross, on the Bitcoin charts, is a bullish signal.
The patterns are typically used by investors and traders. It signals a trend change from bearish to bullish, or vice-versa, is about to, or has, taken place. As you cannot always be certain of the trend, and TA can sometimes be a self-fulfilling prophecy as people buy into the narrative that they are biased towards, the old favorite ‘Dollar-Cost-Average’ (DCA) strategy can be a successful way to hedge.
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