Three and half years ago, Bitcoin’s 50-day moving average (MA) and 200-day moving average crossed over for the second time in a matter of months. What followed was a two year period of growth that saw Bitcoin go from $300 to almost $20,000 before succumbing to the January 2018 market crash. Today, for the first time since that instance in October 2015, these two moving averages have crossed over again.
What’s interesting about the 2015 occurrence is that, as with today, it also followed an extended bear market that saw Bitcoin lose over 80 percent in value. From a high of around $1,150 in November 2013, Bitcoin’s price dropped all the way to below $100 in January of 2015 before slowly recovering. If history is anything to go by, it seems likely that Bitcoin is now on the road to recovery after a devastating 2018.
What is so special about the golden cross?
A ‘golden cross’ is formed when the line measuring the average price of an asset over the past 50 days (50-day MA) crosses and moves above the line measuring the average price of an asset over the past 200 days (200-day MA). It is named as such because it is a strong indication that a market is changing from a bearish-to-bullish trend. By comparison, when the 50-day MA crosses and drops below the 200-day MA it is often referred to as a ‘death cross’ and indicates a downward trend in the market.
Potential to retrace
While a golden cross is usually a good sign in the long-term, there is still a strong possibility that Bitcoin will retrace to $5,000 levels before improving again. A similar pattern formed in 2015 when Bitcoin retraced from $317 to $200 in August before forming the second October golden cross and confirming the trend reversal.
Bitcoin is currently trading at a five-month high above $5,540 but is now in overbought territory based on the 14-day relative strength index (RSI). This is a further indicator that a pullback in the short term is likely, especially if BTC doesn’t close above the previous high of $5,466 today (UTC time).