Bitcoin to Form Golden Cross but It Cannot Guarantee a Bull Run


Bitcoin traders are enthusiastic about a textbook technical indicator whose formation could send the asset’s prices higher.

Dubbed as Golden Cross, the candlestick pattern will occur when bitcoin’s short-term moving average closes above its long-term moving average. On the cryptocurrency’s daily charts, the 50-period MA is inches away from jumping above the 200-period one, fueling traders’ buying sentiment atop bitcoin’s 42 percent price rally in 2020.

Mixed Signals

But history shows that Golden Crosses are not always accurate in predicting long-term upside moves. In the Gold market, for instance, there have been many instances wherein the bullish continuation indicator has delivered a complete opposite of an upside run.

Commodity data analysts at Sunshine Profits noted that since 2009, purchasing gold after a golden cross formation did not deliver gains. In 2014, for instance, the gold market formed Golden Cross multiple times, only to result in unsustainable upside rallies.

“This means that the golden cross in gold is not a reliable bullish indicator and viewing it as such does not seem like a profitable thing to do,” wrote Sunshine Profits in one of their columns.
Gold’s Golden Cross over the recent history | Source: Sunshine Profits

In bitcoin’s case, the formation of a Golden Cross has yielded wild price rallies so far.

The last of such moves occurred in April 2019, wherein the price surged by 170 percent three months after making a Golden Cross. Similarly, the same candlestick pattern in October 2015 followed bitcoin registering one of the history’s biggest price rallies – from $300 to $20,000 in just two years.

But, it is the same asset that registered a massive drop after logging its all-time high at circa $20,000. In total, bitcoin is still trending almost 50 percent down from its historic top – and one indicator alone cannot promise to bring another $10,000 to its valuation.

Converging Bitcoin’s Fundamentals

Technical indicators lag fundamentals. Bitcoin was able to form a Golden Cross in 2019 because investors treated it as an insurance asset against the then-escalating US-China trade war and yuan devaluation. The technical pattern later extended because of the hype created by Facebook’s foray into the cryptocurrency sector with Libra.

But then, traders took their profits and crashed the prices from circa $14,000 to as low as $6,430 as regulators brushed aside Libra and US-China agreed to work out a deal.

Bitcoin’s imminent Golden Cross formation comes on the backing of two key catalysts: halvening and monetary easing.

With halvening, bitcoin’s daily supply rate is scheduled to get slashed down from 1,800 BTC to 900 BTC. At the same time, central banks’ decision to inject hundreds of billions of dollars into the economy as a measure to safeguard it from global risks is somewhat helping bitcoin as investors’ offbeat risk-on asset.

Therefore, should these catalysts sustain, investors have a reason to enter or stay put in the bitcoin market. It would further prolong the Golden Cross formation.

If not, the bullish formation could fail, as it did in the case of Gold in 2014.