Bitcoin Price Struggles to Hold Above $25,000 as Death Cross Looms
As the price of Bitcoin attempts to maintain its position above $25,000 per coin, a potential death cross signal is looming on the horizon. This bearish crossover on the daily chart could be triggered with tonight’s daily close, regardless of whether Bitcoin manages to hold above the previous local bottom of $24,775 in June 2023.
Betting On The Bearish Bitcoin Death Cross
The Bitcoin to USD (BTCUSD) pair is just hours away from a potentially significant event – the activation of a death cross on the daily chart. This would mark the first bearish crossover of the 50-day and 200-day moving averages in 2023, contrasting the positive golden cross that occurred earlier in February this year.
The significance of this signal should not be underestimated. Moving average crossover signals are among the most effective trading systems available and fall under the category of trend-following tools. The last time this signal appeared, Bitcoin experienced a 65% decline. If a golden cross had taken place, it would have nullified this sell signal and resulted in only a 15% loss.
However, how does this signal perform historically? Analyzing the performance of trading BTCUSD using only golden crosses to buy and death crosses to sell, it is revealed that only 41% of the trades were winning trades. More than half of the trades resulted in a loss. Nevertheless, trend-following tools demonstrate their effectiveness in this scenario. Although trades were losing most of the time, the winning trades yielded an average return on investment (ROI) of 585%.
The death cross is imminent | BTCUSD on TradingView.com
Tabulating The Results Of Trend-Following Trading Systems
The strength of trend-following systems lies in their ability to capture the majority of a genuine trend, although they may lag and produce false signals during market chop. While losing trades outweighed winning trades with a percentage of 41%, the overall return was significantly higher due to the substantial gains made during the winning trades. Furthermore, losses were minimized, with a maximum drawdown of only 17%.
Based on the data alone, there is a higher likelihood that a new downtrend may emerge. However, if Bitcoin can form a golden cross in the days, weeks, or even months following this death cross, it may signify a temporary whipsaw effect as BTCUSD establishes a reliable bottom. Conversely, this could serve as an early warning that the bearish trend is gaining momentum.
Additionally, other Bitcoin charts related to institutions suggest that the impending death cross may not be as dire as it appears. In issue #20 of CoinChartist VIP: “Flirting with Death,” a chart compares the BTCUSD spot death cross with the proximity of the signal in BTC CME Futures and Grayscale Bitcoin Trust (GBTC). In this exclusive chart, the 50-day and 200-day moving averages do not align closely with the death cross, portraying a more bullish price action in one of the two charts.
