BTC Death Cross: "He chose the road Death Traveled"
Updated: Jun 16, 2021
There is a lot of talk about an upcoming Bitcoin "Death Cross" (DC). These are wonderful examples of FUD and get lots of clicks and views. And yet this content is confusing or factually incorrect. What does this signal even mean?
Today, we can predict an imminent Death Cross will occur to Bitcoin (BTC) this coming weekend. This is shown on the Daily Chart for Bitcoin below, with the event anticipated to occur on the 19th - as shown by the forward extrapolated 200-MA and 50-MA. Here, I'm using a great tool from Steve over at Crypto Crew University. You can get this indicator on Trading View here, but make sure you also sign up for his other stuff! Notice also that price is still well within either the Wyckoff Accumulation or Re-Accumulation patterns we have discussed on this channel. Further, the daily RSI has not even breached the sell zone during this rally. This rally should still have legs.
In this article, we will explore the meaning of a Death Cross and its recent effect on three recent cases: the 2018 Bull Run End, the 2019 Pump End, and the 2020 Bull Run Beginning. Using this information, you will be better armed for the upcoming signal.
But first, let's set the tone:
Cardinal cartel, Pockets are full, Corrupt intel, Face down in the pool, Power absolute, An orgy institute, Who'll pluck the fruit? - Dead Cross
What is a Death Cross?
To begin with, recall that the simple moving average (MA) is a technical indicator that uses past data to generate a smooth trend line for the price of an asset by taking an average of prices across a time frame. The US Stock Market had a long standing tradition which crypto inherited - a cross between the 50-D MA and 200-D MA became the Golden / Death Cross. This is simply a Convention.
A lot of people forget these ideas are meant for the DAILY chart. These crosses are relevant on other time frames, but the real Bull vs. Bear is decided by the Daily time frame. However, there are some very significant events on the 2- and 3-day Death Cross signals. For instance, the Nov. 2018 crash of >50% in BTC price occurred at the 3-day Death Cross.
What does a Death Cross mean?
The DC is a LAGGING indicator. It does not say what will occur and only says what has happened. When there is a DC event that comes off a major up-trend, traders are told that UP TREND is over.
For further nuance, consider that many traders think of Bear Markets as "price only goes down" or "price goes down fast", but this is simply not the case. In fact, it might be better to say this means "price does not go to moon fast" or that all rallies are sold off at or below previous support/resistance levels.
This leads to yet another market - a sideways trading, "Llama" market. A favorite YouTube channel, Crypto Daily, coined this term because the Llama moves about by hopping with quite some energy! This up-down action is very confusing... That is exactly what one should see in Accumulation or Re-Accumulation markets!
History doesn't repeat itself, but it often rhymes – Mark Twain.
The 2019 End of Pump DC made a pattern very similar to today's. BTC approached the DC after a major up-trend, with price below the indicators and a massive short interest. A last minute crash, fake-out led to a Short Squeeze - a new higher high. Price then held above the averages for about two weeks - but then crashed. Notice the averages acted as weak support. Still, a new, lower low was formed. This is the hallmark of a Llama market.
This lower low below SC did a great job of rallying bears. SC was tested from the bottom and found it as resistance and price fell to $6500. It took some time, but from that base, the previous high was tested about 140 days later after the Death Cross. In so doing, a Golden Cross was actually formed in late Feb. However, this was ALSO a fake out as priced made a double top.
Still, at the time, everyone was VERY bullish. The S&P was super pumping and Trump was tweeting, "New All Time High" almost every day. A few weeks later, Covid surprised the market. This event actually acted as the Wyckoff "Spring" to end the accumulation period, as weak hands gave all their Bitcoins and alt-coins to the Composite Man. Everyone's stop-loss was triggered and the Composite Man grabbed all the coins.
This recent example shows that the Death and Golden Cross events do not give clear and easy to trade, "must go this way" signals.
In 2018, there was another significant Death Cross. This case looks is a little different. Price had bounced hard and had already passed through the MAs - both down and up. Each time a level is passed through, it weakens. Also different was that the RSI had pumped off the low and hit the 55+ sell-zone well before the Death Cross. In fact, it had double topped! That's a signal to professional traders that there is NO support for a rally.
Notice that a full-on Bear market is very destructive. Bitcoin fell some 80% from its peak. That would put BTC at around $13k. This 2018 Bear killed many ALTs - with many getting 90-99% losses from their high. Ethereum (#2) fell from $1,464 to 84, XRP (#3) fell from $3.84 to 0.226. It did not matter if the ALT had "good fundamentals" or was a "project you really liked".
Approaching the DC, the MAs acted as resistance and price fell off before the signal. Thus, the Bear market in 2018 was broadcasted well in advance of the signal. That would be like if BTC collapsed very soon - like today or tomorrow. But then notice that just after DC, price pumped significantly. In fact, it pumped 50%! It pumped right up to the 200-MA, which now acted as resistance. Price continued to fall for quite some time, but skilled traders made a lot of money trading these bounces.
Notice a key difference between Bear & Llama market. A Bear is when price is BELOW the MAs and price will sell off from them. A Llama will not respect the MAs, leading to sideways action. A Llama market is more confusing because it does not need a defined up- or downside, while a Bull or Bear is broadcasted to all professional traders.
Finally, let's explore the most optimistic DC scenario. In March 2020, a DC occurred after the Pandemic Crash. A new low in RSI had formed and long capitulation wicks show the Composite Man was buying all the crypto. For weeks, price rallied, but on the day of the DC everyone knew the market was over. The DC occurred with price well below the MAs and anyone could see that Bitcoin would go to Zero. It immediately sold off 15%.
Notice here how this sell off was in fact a great buy opportunity. In fact, here we see what should have been an obvious signal - that was once again - completely wrong!
On the 4-hour chart, price seems to be consolidating at a significant resistance zone ($46,500) after following through on a previous Bull Flag. The previous Bull Flag required a pull back / "spring" / back-test and has now cleared the 200-4hr MA (red). Furthermore, today's consolidation might also be making a Bull Flag. If this flag were completed, the target for that pump would be about $45,500 (pink). That would be well above both the 200-D MA (red) & 50-D MA (green). This would mean "Not Bear", as well as a new, higher high.
We cannot know what kind of Death Cross this weekend will bring. In this article, we have covered a few scenarios when this signal led to both short- and long-term contradictions. The issue is that the Death Cross is a lagging indicator that was inherited from a bygone era.
Today, the Death Cross for BTC is certain to arrive this coming weekend. Meanwhile, at time of print the 200-MA is at $42,727 while the 50-MA is at $44,163. Price will either pump above the 200-MA before the Death Cross, or it will not.
And yet, there are some patterns we have observed:
If price rallied above the 200-MA, we can be sure that "NOT BEAR" in effect.
This will likely lead to Llama Market
A future Bull can be born from Llama, but usually not so fast.
If price did not get above the 200-MA prior to the DC, everyone says "BEAR".
If there is a sell off early, we can expect a rally
If there is failed pump early, we can expect a significant sell off.
In other words, you can protect your self today by knowing how things went down in the past. This can guide traders on where to set STOP-LOSS positions, (re)balance their portfolio, and manage their risks.
If we arrive at a "Not Bear", it's best to assume a Llama is coming. We have seen in a previous article that in every previous instance where the 21-W EMA was broken, this sort of rally would attempt to re-test the ST-level. If BTC is in Re-accumulation, then we should expect the Composite Man to want price above the MAs because it will confuse and frustrate traders. If this is the end of Accumulation, then we should see consolidation and support found on the MAs. Either way, we should not expect an answer very soon. For either pump above the MAs scenario, we won't know much for weeks!
If price does NOT pump above the MAs, then Bears will be reinvigorated. We might see some short term pumps, but expect sell-offs at resistance levels. None of these scenarios are what other, common articles are discussing for the upcoming Death Cross. However, to protect yourself consider using a smart STOP-LOSS.