Bitcoin, the world’s largest cryptocurrency, started 2022 on a rocky note following a strong-but-choppy 2021. From a high of about $69,000 reached in November 2021, the virtual currency fell to about $40,000, placing it close to the ominous-sounding Death Cross.
The Death Cross forms when the 50-day moving average (MA) of an asset's price falls below the 200-day moving average. It is indicative of recent selling pressure which causes the short-term average price to go lower than the longer-term average price.
Some analysts expect prices to continue to fall after appearance of the Death Cross. It is expected to happen in a few days, analysts said, even as the cryptocurrency has bounced to above $43,000.
On a technical basis, Bitcoin is expected to find resistance at $45,000. "Bitcoin needs a bit more recovery as RSI is still below 50, indicating that it is in the oversold zone. If bulls try to make an upside move, then the price may soar to around $45,000 level although, in case of any misstep, prices can fall to $38,000-$36,000 zone," Shivan Thakral, CEO, BuyUCoin told The Economic Times.
Crypto assets are on a downward trend amid speculation that interest rate hikes could follow one after the other starting as early as March 2022. This is one of the measures that authorities are taking to combat high inflation by sucking out liquidity from the markets.
Bitcoin last formed a Death Cross in June 2021. The signal also appeared in March 2020 but was soon overcome as the trend reversed and ended up forming a Golden Cross (when the 50-day MA overtakes the 200-day MA) soon after.
This indicates that signals such as Death Cross may not be a reliable predictor of further downsides.
"The bull and bear market have an elastic effect; the more rigorously the market goes down, the more aggressively it comes back up, giving remarkable returns," a spokesperson for the crypto exchange WazirX told The Economic Times.
But Craig W. Johnson, Chief Market Technician at Piper Sandler & Co, sounded more pessimistic, telling BloombergQuint the often, the appearance of the Death Cross has been followed by more bad news. "I think time could be a bigger risk to BTC than price at this point," he added.
Analysts are also noticing an increased correlation between stock and crypto movement on the charts. Data from the International Monetary Fund (IMF) shows that the correlation between Bitcoin and the US stock indices climbed to 0.36 in 2020, from 0.01 between 2017 and 2019.
The 100-day correlation coefficient, which indicates the amount of synergy between stock indices and Bitcoin, is currently at 0.44. This is the highest observed value since Q4 of 2020 and indicates greater interconnectivity between the two price movements. (A value of 1 means movement in tandem, and -1 indicates no existing relationship.) This means that market shocks could become transmissible from equity markets to crypto markets.
Bitcoin investors stock up
Bitcoin miners, however, are leveraging the massive price drop to accumulate assets and are, in fact, holding more BTC now. In the first two weeks of 2022, a significant rise in holdings by miners has been observed.
For passionate Bitcoin investors, any dip in the price is bought into and is seen as a buying opportunity.
It also helps that several mainstream financial experts reckon -- Goldman Sachs has predicted a price of $100,000 -- the virtual currency could head much higher in 2022