Severe Downside Risks for Bitcoin on Bearish ‘Death Cross’ Appearance

A bearish “death cross” pattern is looking to appear in the Bitcoin four-hour chart for the first time in five months, which is a warning for additional losses in the short term.

But recent history indicates that the pattern might not lead to a prolonged bearish phase for the benchmark cryptocurrency. For instance, its last occurrence in August 2020 coincided with BTC/USD dropping 18 percent to $9,813.

Nevertheless, supportive fundamentals helped the pair recoup its losses entirely, followed by a wild runup to an all-time high near $42,000 this January.

It shows that the past death crosses appeared much near Bitcoin’s local bottoms.

The BTC/USD exchange rate dropped nearly $10,500, or 25 percent, to trade near $31,800 after closing at its record high amid growing fears of inflation and the US dollar debasement. Before that, the pair delivered back to back monthly gains, rising by more than 1,000 percent from its mid-March nadir of $3,858 (data from Coinbase).

Bitcoin enters downward correction mode after closing at its record high near $42,000. Source: BTCUSD on TradingView.com

On Wednesday, Bitcoin’s 50-day moving average fell $33,342 from its session peak of $37,616, while its 200-day moving average increased to $33,218 from $28,647.

Bitcoin to $28,000

A death cross occurs when the 50-DMA, which many chartists treat as a short-term trend indicator, closes below the 200-DMA, which traders view as a benchmark line between longer-term uptrends and downtrends. Bitcoin is very close to forming a similar pattern on its short-term chart, which signals a sell-off in the sessions ahead.

“The last death cross,” stated analysts at TradingShot, “was not the end of the world, but it did deliver a 15 percent pullback. It took BTC/USD 50 days to recover the price [after the bearish crossover]. From the current level of the 4H MA200, a -15% pullback would put BTC around $28,000.”

Meanwhile, TradingShot also envisioned a 50-200 crossover scenario based on Bitcoin’s moving averages’ recent history. For instance, in December 2020, the two MAs came closer to forming a death cross but did not make the bearish contact. It later led to an aggressive bullish wave.

Bitcoin scenarios around a death cross potential. Source: BTCUSD on TradingView.com

“We already see a small Channel Up forming (within the Channel Down), which is encouraging,” the TradingShot analysts said while referring to the chart above.

All is [Still] Well

Many analysts agree that further dips in the Bitcoin market would attract accumulators, primarily investors with a long-term bullish outlook on the cryptocurrency.

Konstantin Anissimov, executive director at crypto exchange CEX.IO, noted that BTC/USD has seemingly hit bottom near $31,500. The analyst added that the cryptocurrency’s path in the upcoming monthly sessions is to the upside.

“The demand is growing, while the coin’s production rate is quite low, which could cause the coin to go up to $50,000 by the end of Q1 of this year,” he told Bitcoinist.