Golden Cross Set to Hit Bitcoin: but there are Complications Ahead
Image courtesy of Unsplash (Adam Nowakowski)

Golden Cross Set to Hit Bitcoin: but there are Complications Ahead

Although it may be tempting to immedietly open a long position when seeing a golden cross, caution is probably the best policy.
Neither the author, Kai Morris, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Technical analysts have spotted signs of an upcoming golden cross forming on Bitcoin’s chart. This cross has huge implications for Bitcoin’s immediate future, but it may be wise for retail traders to tread cautiously as there can be other contextual factors that need to be examined.

Bitcoin has Been Showing Bullish Price Movements in the Past Few Months

Taking a look at Bitcoin’s price chart ranging from March to now, we can see the potential for a golden cross – predicted to happen in just a handful of days. Golden crosses are when a short-term moving average passes a long-term moving average while traveling upwards. With Bitcoin, we see the 50-day moving average is very nearly crossing the 200-day moving average

BTC chart showing various moving averages– image courtesy of TradingView

When looking at these two metrics in isolation, this becomes highly bullish news. However, before traders FOMO into long positions, there is a caveat to consider. The green line on this chart shows the 10-day moving average, which is set to cross both the 50-day average and the 200-day average, only this time it is traveling downwards. 

This could actually signify an infamous death cross, which is where a short-term moving average passes a long-term moving average while falling. Unlike golden crosses, death crosses are highly bearish. 

Bitcoin has been encountering death crosses throughout the year, with several occurring through June and July. What makes this one is different is the 50-day moving average indicates more positive activity than on previous occasions.

While the falling of the 10-day moving average is worrisome, traders have been focusing more on the positive activity happening recently. This is because it can be easily attributed to the recent news cycle, with Breven Howard, the Virginia Public Pensions Fund, and other investment funds cementing their positions on Bitcoin and other digital assets from the start of the month. 

Finance is changing.
Learn how, with Five Minute Finance.
A weekly newsletter that covers the big trends in FinTech and Decentralized Finance.

Understanding Previous Golden Crosses

When it comes to technical analysis, context is key. And so, to make reasonable predictions, we need to zoom out and examine past trends to better assure informed decisions are made about the future. 

Let’s take a look at Bitcoin’s activity throughout 2019 and 2020. Here, we can see two death crosses and three golden crosses – with the final golden cross marking the enormous bull run that led into 2021. The yellow line indicates the 200-day moving average, and the purple line indicates the 50-day moving average.

BTC chart from 2019 to 2020, with crosses marked– image courtesy of TradingView

One important factor to note is not every golden cross automatically means a bull run will occur. For instance, the golden cross which formed just before March 2020 actually led to a death cross weeks later.

What this tells us is crosses are not absolute indicators of positive or negative activity. While they certainly can be a sign of good news (such as with the final golden cross marked on the chart) this is not always the case. In fact, if there is a quick succession of golden and death crosses, then it is likely to show nothing more than plain-old volatility.

These types of crosses are taken more seriously in the traditional markets, such as when TSLA experienced a death cross in July, but this is because they are less volatile than the digital asset markets. In crypto, this behavior is relatively commonplace and expected by retail traders, although it oftentimes does worry institutions.

This consistent switching between crosses could also indicate an accumulation phase, which is where traders consistently buy more assets spread over a period of time. Usually, accumulation phases are good news for the future, as they suggest people are increasing their positions in anticipation of something positive happening down the road. This is what happened in 2019 and 2020, leading to the highly potent golden cross being triggered just after May. 

The same could be happening here, too. Bitcoin may currently be experiencing an accumulation phase. Death crosses were spotted earlier in the year, and considering how this golden cross is coming with a falling 10-day moving average, it suggests there will be no huge rally. However, it could indicate there will soon be a rise of some sort, which may be followed by a more potent golden cross in the months to come. 

Join our Telegram group and never miss a breaking DeFi story.

What do you think will happen to Bitcoin’s price when the cross takes place? Let us know in the comments below.