Bitcoin (BTC) broke $24 000 last week, gaining close to 50% over the last seven weeks. This spectacular recovery after a dreadful 2022 has surprised even the most committed bulls.
But can it last?
A key technical indicator – known as the golden cross – is when the 50 day simple moving average crosses above the 200 day simple moving average, and that point is now tantalisingly close, as shown in the chart below. The S&P 500 has already hit that point, as shown in the lower chart.
Bitcoin bulls eye the golden cross
Chart: TradingView
S&P 500 hits its golden cross
Chart: TradingView
A sustained break above the 200 day moving average, which many bulls are already anticipating, could signal the end of the crypto winter.
Not so fast, says Serge d’Adesky at Seeking Alpha. “I see this as a bull trap that will catch Fomo (Fear of Missing Out) investors [if they] invest too early.” While the multi-year chart remains bullish, d’Adesky sees a possible test of $34 000 for BTC on this leg up, followed by a further and deeper drop to $10 400 before the next bull market commences in earnest.
Omkar Godbole at Coindesk points out that BTC has seen eight golden crosses to date, three of which marked the start of robust bull markets, with gains of 100% to 350%. Three of the golden crosses turned out to be bull traps, with BTC dropping violently in the subsequent months. The two remaining golden crosses were followed by sharp price rises for a couple of months before slipping later into a “death cross” – the opposite of a golden cross, when the 50 day moving average crashes through the 200 day moving average.
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Should both the S&P 500 and BTC breach the golden cross, this would be seen by traders as further confirmation that the bulls are back in control. MarketWatch notes that the S&P 500 has seen 52 golden crosses since 1930, according to Dow Jones market data, which used back-tested data to account for the index’s performance prior to its creation in 1957. In that time, stocks were trading higher one year later 71% of the time.
The first bullish signal for BTC was the break above the 200 day moving average, which analyst Florian Grummes says has now become the new support at around $19 700. “Should a pullback or consolidation occur, plenty of strong support awaits in the area between $18 000 and $20 000.”
One factor that has changed after the brutal 14 month crypto winter is the number of derivatives traders entering the space. The sharp rally since the start of 2023 has forced many to liquidate their positions as rocketing spot prices dunked them deeper under water. The short sellers may now become buyers, pushing the BTC price higher in the coming months, says Grummes.
More cautious investors are eyeing the RSI or Relative Strength Index which is now in heavily overbought territory. That often, though not always, marks the beginning of a selloff.
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