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Crypto Cyberthreats Spike This Year With Russia Hit the Hardest, Report Reveals

Crypto Cyberthreats Spike This Year With Russia Hit the Hardest, Report RevealsCyberthreats related to cryptocurrencies have increased with rising demand for the digital assets, a study has concluded. Russia, Thailand and Peru are the most affected countries by malicious attacks designed to exploit the heightened interest in decentralized money, the authors point out. Booming Crypto Markets Bring Out Cybercriminals Despite the ongoing Covid pandemic still leading […]

Thomas Lee: Crypto Market Must Evolve Further to Avoid Influence from Musk’s Actions

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Elon Musk Faces Protestors Outside Tesla Factory Due to His Influence Over Crypto

A group of protestors calling themselves “Stopelon” gathered outside the Tesla processing factory in northern California earlier in the week to voice their anger at Elon Musk and his continued antics in the world of cryptocurrency. Elon Musk Faces More Anger Elon Musk has recently been deemed one of the most disliked figures in the

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Upbit Warns About These 25 Altcoins

Briefly – – Upbit Crypto exchange flags 25 virtual coins with a cautioning notice.– The exchanges warn about the alternative coins for four similar reasons.– Moreover, Upbit suspends cash deposits for the 25 cryptocurrencies. A South Korean crypto brokerage firm, Upbit, posted investment advice, warning about multiple cryptocurrencies. Komodo (KMD0 is among the 25 virtual …

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Here’s how Bitcoin’s impending death cross could be a contrarian buy signal

Bitcoin traders are sitting on their hands after spotting a death cross on the daily chart but could this be a buy signal for contrarian investors?

Bitcoin’s (BTC) succession of sharp corrections from its all-time high at $64,900 has turned investor sentiment negative, at least for the short-term. While some analysts believe the bottom may have been hit, others are warning of a further fall due to the “Death Cross” pattern that, at the time of writing, is on the verge of completion. 

For new traders, the name death cross itself brings a lot of negativity and a feeling of impending doom. This sentiment can trigger selling panics, especially if the market has already been going through a bear phase prior to the pattern being spotted.

However, is a death cross something to be feared or is it a crystal ball that gives traders insight on when a plunge is imminent?

Let’s find out with the help of a few examples.

What is a death cross and how accurate is it?

The death cross forms when a faster period moving average, usually the 50-day simple moving average, crosses below the longer-term moving average, generally the 200-day SMA.

LTC/USD daily chart. Source: TradingView

The crossover is bearish as it shows that the uptrend has reversed direction. Large institutional investors generally do not buy in a falling market until a bottom is confirmed. Due to this, buying dries up and investors holding positions rush to the exit due to panic, exacerbating the decline.

Before looking at a few death cross examples in the crypto markets, let’s see how the pattern has affected the S&P 500 index between 1929 to 2019. According to Dorsey, Wright & Associates, LLC, the average fall after the formation of the death cross is 12.57% and the median fall is much lesser at 7.75%.

However, if only the post-1950 period is considered, the average fall is less than 10.37% and the median is at 5.38%.

While those figures are not startling, especially for volatility-accustomed crypto traders, the bearish convergence of these two moving averages should not be taken lightly.

History shows that the death cross has resulted in a few instances of massive declines in the U.S. stock market indices.

After the death cross on June 19, 1930, the S&P 500 plummeted 78.84% before bottoming out on Sep. 15, 1932. The next terrible death cross came with a 53.44% correction that occurred from Dec. 19, 2007, to June 17, 2009.

This shows how in select instances, the death cross has been able to predict a sharp correction. However, two sharp declines of over 50% in a 90-year history suggests the pattern is not reliable enough to instil instant fear in traders.

Recent Bitcoin death crosses

As cryptocurrencies are still a nascent market, the available data is limited. Let’s review a few instances of the death cross and how it has affected Bitcoin.

BTC/USD daily chart. Source: TradingView

The most recent death cross occurred on March 26, 2020, when the BTC/USD pair closed at $6,758.18. However, this death cross turned out to be an excellent contrarian buy signal as the pair had already formed a bottom2 weeks back at $3,858 on March 13.

Before that, the pair had formed a death cross on Oct. 26, 2019, when the price closed at $9,259.78. By then, the pair had already corrected 33% from the high at $13,868.44 made on June 26, 2019.

After the cross, the pair bottomed out at $6,430 on Dec. 18, 2019, suffering a further 30% fall. From the high of $13,868.44 to the low at $6,430, the total decline was roughly 53%.

BTC/USD daily chart. Source: TradingView

In another scenario, Bitcoin’s roaring bull market topped out at $19,891.99 on Dec. 17, 2017, and the death cross formed on March 30, 2018, when the pair closed at $6,848.01. By then, the pair had already corrected over 65% from the then all-time high.

Thereafter, the selling continued and the bear market bottom formed at $3,128.89 on Dec. 15, 2018. This meant a further fall of about 54% from the death cross and a total drawdown of 84% from the all-time high.

The above instances show how the death cross occurs late in the bear market cycle and investors who wait for the pattern to form give a lot of profits back to the market. At the same time, initiating bearish bets may work for short-term traders but could prove detrimental for long-term investors.

Key takeaways

The examples show how the death cross is a lagging pattern, which forms when a large part of the decline has already occurred. Typically, long-term investors don’t need to panic if they spot the death cross on the daily charts but it is a signal to be more attentive to and perhaps prepare one’s portfolio for positioning for a variety of unanticipated outcomes.

Death crosses can also, at times, be used as a contrarian signal so when they are spotted traders should look for other indications of the chart to spot a possible bottom.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.