NounsDAO on the Brink of Treasury Division Split Amidst 'Rage Quit' Uprising by NFT Holders

MicroStrategy's Significant Bitcoin Impairment Losses May Mislead: Berenberg

Binance Supercharges Bitcoin and Ether Trading in Argentine, Brazilian, and South African Currencies with Exciting Fee Promotion

  • The Bitcoin daily chart is on the verge of revealing a "death cross," a prominent bearish technical signal, for the first time since January 2022.
  • Historical data has demonstrated that the death cross should not be solely relied upon as a dependable indicator.
  • The current robustness of the U.S. dollar and broader macroeconomic trends are indicative of challenging times ahead for high-risk assets, including cryptocurrencies.

 

The price of Bitcoin (BTC) appears to be moving in the opposite direction of the dollar index (DXY).

The foremost digital currency is currently poised for a significant event, as its 50-day simple moving average is on course to dip below its 200-day SMA, signaling the occurrence of a "death cross." This marks the first time this has happened since January 2022. Simultaneously, the dollar index, which gauges the strength of the US dollar against major global currencies, appears poised to validate the opposite scenario – a "golden cross."

The imminent occurrence of a death cross in Bitcoin, expected within the next few days, signals a situation where short-term price performance is lagging behind the long-term, possibly paving the way for a bearish trend. Furthermore, Ether (ETH), the second-largest cryptocurrency in terms of market capitalization, is also teetering on the brink of exhibiting a death cross.

"On the Bitcoin chart, such a pattern [death cross] could form next week," AlexKuptsikevich, the senior market analyst at FxPro, said in an email on Monday. "Such a signal suggests a further decline, emphasizing the bearish trend here."

Nevertheless, historical data demonstrates that relying solely on a bitcoin death cross as an indicator is often inconclusive.

The table shows death cross is not reliable as a standalone indicator and has trapped sellers
on the wrong side of the market several times in the past.

The cryptocurrency market has experienced nine instances of death crosses in the past. Interestingly, out of these nine occurrences, negative returns were observed over three-, six-, and 12-month periods in only two cases. Surprisingly, Bitcoin traded lower one year after the death cross formation in only five out of the nine instances.

The impending death cross seems to coincide with the dollar index poised for a golden crossover, all against the backdrop of a deteriorating macroeconomic outlook for risky assets.

The DXY's 50-day Simple Moving Average (SMA) may surpass the 200-day SMA in the upcoming weeks, a phenomenon often regarded as the initiation of a bullish trend.

Daily charts of BTC and DXY

Bitcoin and other high-risk assets, such as technology stocks, typically exhibit an inverse correlation with the dollar index. According to data from the TradingView charting platform, the dollar index has surged by 5.3% to reach 104.90 since mid-July, marking its highest level since March 15. During the same time frame, Bitcoin experienced a significant decline, plummeting by 19%.

Based on the International Monetary Fund (IMF), the U.S. dollar serves as the dominant global reserve currency, playing a pivotal role in the majority of worldwide trade, non-bank lending, and international debt transactions. Consequently, any significant surge in the value of the U.S. dollar results in a global financial tightening effect, exerting downward pressure on assets associated with higher risks.

"The FX market has come under the spell of higher energy prices. U.S. energy independence and its net exporter status leave the dollar well-positioned for higher energy prices. It would seem the only real threat to the dollar in the near term would be some dramatic re-assessment of growth prospects," analysts at ING said in a note to clients on Tuesday, explaining the dollar's rise.

According to ING, as the U.S. economy continues to perform strongly, there is growing skepticism in the markets regarding the anticipated series of rapid interest rate cuts by the Federal Reserve (Fed) next year. The prospect of a more dovish stance by the Fed has played a role in supporting Bitcoin's rebound from its lows in 2022. Over the past year, the Fed has implemented rate hikes totaling more than 500 basis points since March.

ING has pointed out that the recently acquired knowledge regarding the reduced likelihood of swift interest rate reductions suggests that longer-term U.S. Treasury yields are more likely to trend upward. To put it differently, the yield curve might undergo a phenomenon referred to as "bear steepening" or de-inversion, a pattern historically associated with significant peaks in risk assets.

"I’m finally turning more constructive on crypto (yes, I see the prices), but I fear we must first get through a tricky inflection point on the macro side," Ilan Solot, co-head of digital assets at Marex Solutions, said in an email. "The risk is a serious flush out of longer-dated yields and growth assets causing temporary re-coupling crypto as the new sock puppet proxy for quant traders."

A bear steepening, where long-term rates price in higher for longer interest rates
and short duration yields hold steady, could cause risk aversion (Marex Solutions)

"I’m pretty convinced the curve steepening train is leaving the station; the question is (a) the energy behind the move and (b) whether it’s on a bull or bear steepening track. Unfortunately, I’m leaning towards the latter – hope I’m wrong," Solot said.