Yesterday, we briefly glossed over Bitcoin’s (BTC) impending “Golden Cross” without really explaining it or what it means. Today, we’ll try to rectify that oversight, and delve into a short history of Bitcoin’s crosses – both “Golden” (bullish) and “Death” (bearish).
Why So Serious
First of all, what are the Golden/Death Crosses (GC/DC) and, why do we care? Crosses consist of the “crossing” of two moving averages, namely a long-timeframe moving average and a much shorter one. Typically, the 50-day and 200-day simple moving averages (SMAs) are used to define a cross, although other averages can be used, both on the daily and on other timeframes (200SMA/200EMA is used by some, and is similar to the 50/200 cross).
Generally, it is usually thought that a GC telegraphs an asset’s move higher in price, and vice versa for a DC. But being a generality, it is more complicated than this. Sometimes crosses end up being wrong, and sometimes they jink and swerve and form combinations of crosses. Taken on its own, the occurrence of a GC/DC should be given little regard; more information about the context of the market in which it occurs, and about the characteristics about the cross itself, is needed.
To get an idea how Bitcoin has dealt with its crosses (“typical” ones: 50/200 SMA crosses on the daily chart), we will look at all of them.
Not A Simple History
According to the BraveNewCoin Bitcoin chart (i.e., the best chart), since 2011 when it starting tracking Bitocin, there have been five GC’s and six DC’s – with the sixth GC looking to cross in the next few days.
One of the first things we notice about the distribution of crosses is that they often occur in clusters. Out of the five Bitcoin GC’s, three have occurred in tight clusters of three (tight = within 150 days).
The most recent cluster is shown below, and we see a GC-DC-GC sequence between July 13 and October 26, 2015, which ultimately yielded a multi-year bull run between October 2015 and December 2017.
The first thing to note about this sequence is that it comprises a long-term market reversal. This formation came off an extended period of consolidation and bottom-formation, after one of Bitcoin’s customary mega-pumps about 1.5 years prior.
Another thing we can take note of is the aspect of the final cross in the sequence: both moving averages are generally heading in the same direction: up. This is unlike the previous cross in the sequence, where the 200 was flat and the 50 down; or the first, where the 200 was down and the 50 up. Ergo, crosses that cross with the same general may signal a true direction in the market, rather than a fake-out; and such crosses that come at the end of a cluster are especially noteworthy (we’ll return to this later).
To recap, we have got three things from this first example: three-sequences may signal reversal; the context of the prior market is important; and same-direction crosses may signal a true market direction.
Moving on to the next most recent cluster, we see another three-sequence, but this time an ultimately bearish one of DC-GC-DC between April 8 and September 3, 2014.
Applying our previous rules, we see that they hold here as well and that this three-sequence did also resulted in a reversal – or perhaps in this case, confirmed one. This sequence came at the bearish end of a massive rally of over 800% within a span of just 50 days; and indeed, the three-sequence signaled the counter-point – a sort of rebuttal – to that rally with an extended bearish period.
We can also note the very sharp angle on the first DC, with the 50 crossing hard and sharp across the 200; and also that price itself also crossed very sharp against the 200. This initial signal was confirmed ultimately with the third cross down with mutual direction. We can also note that the final cross occurs with both averages in the same direction, just as with the previous set.
Generally, we can take away from these sequences that single, initial crosses should generally be taken with a grain of salt. They may ultimately end up being correct predictions of the market, but they also, often need to be confirmed with two subsequent oscillations.
If we go back – way, way back – to the late-2011/early-2012 Bitcoin market, we have an example of a pair that didn’t quite turn into a three-sequence; we could almost call this a failed three-sequence. As such, this failed sequence did not result in a reversal along the lines of the initial direction, but instead a reverse-reversal against the initial cross.
This two-sequence ended up being a continuation pattern of the previous monster rally, into an even larger one later. Third-cross events are, therefore, pretty important to watch.
Are they always in sequences? In fact, on the entire Bitcoin chart, we only see a single single-cross (that wasn’t a typo), which came after the 2017-18 all-time-high parabolic rally. This was a DC that came well after the rally, with already 50% of its gains lost. The 50 SMA really never even came within striking range of the of the 200, as price was kept well under the 200 (whereas in all of our other examples, price has at least re-engaged the 200).
If we are to take any general rule from this admittedly puny dataset, it would have to be that odd-number crosses confirm high-timeframe (HTF) reversals from the previous HTF trend, and even-number crosses are fake-out continuation patterns with that previous HTF trend. Three-sequences are the most common pattern on the entire chart; and this concerns us very much in the present tense.
It’s Here
After having done all of this analysis, we may be forgiven for getting excited about the coming week. First, let’s see a chart.
We see what is likely a three-sequence, although it is longer in structure than any previous one at about 300 days. Let us assume that it counts as a three-sequence, and that the double-length is an acceptable new iteration of the pattern.
It is coming after an extended bear market, which lasted from February 2018 to about April 2019. We could interpret this three-sequence as a very HTF reversal of that entire downtrend – indeed, other technical analysis confirms this theory.
The third cross is virtually assured, seemingly impossible that it could fail at this point. And here, we can head to a Coinbase chart to get the exact status of the market – and we see something interesting.
There can be little speculation. If we zoom in, we can clearly see that both averages about to cross are pointing up. What’s more, given how long it takes to move a 200-day SMA, it seems impossible that this scenario will not play out. It is extremely likely that we see a third cross, a Golden Cross; and this GC is extremely likely to be a double bullish cross, confirming the conclusion of a three-sequence.
Historically speaking, according to the observations that have just been explicated, this event should confirm a new HTF uptrend.
Again, the one assumption we have included, which may prove to be incorrect, is that in fact we are seeing a three-sequence despite its unusual length.
However, everything else seems to fit: it is coming off of an extended downtrend, and the trend change is confirmed by other technical indicators. The second cross’s tenure was brief and seems bound to be undone in the next few days; and the mutually bullish directions look likely to seal a reversal as they did five years ago.
The views and opinions expressed here do not reflect those of CryptoGlobe.com and do not constitute financial advice. Always do your own research.
Featured Image Credit: Photo via Pixabay.com
