This signal appears for the first time in the history of Bitcoin (BTC). The 20-week moving average (20W MA) has just crossed below the 200-week moving average (200W MA). Although the BTC price has never experienced such a situation, perhaps the correlation with the traditional stock market (SPX) will give us some clues.
In this article, BeInCrypto takes a look at the very first signal just generated on Bitcoin’s weekly chart. The 20W MA has made an unconfirmed fatal cross with the 200W MA. In traditional markets, this event is usually a confirmation of a long-term bear market. However, it is the correlation with the S&P 500 (SPX) that can help us give this signal a more bullish interpretation.
Buy about 200W MA
On the long-term log chart, we see that BTC price rarely reached the 200W MA area (blue line). This has only happened a few times in history, during the process of generating the absolute lows of previous bear markets (green circles). Additionally, historical declines have generally not led to weekly candles closing below the 200W MA, although there have been singular exceptions to this.
Therefore, until recently, the 200W MA level was thought to be a strong indicator of the BTC bottom and represented a great buying opportunity. The subsequent increases in this area in the past have been impressive:
- 2015: up 8,313% from the last bounce to $230,
- 2019: up 313% from the last rebound at $3,351,
- COVID crisis 2020: Up 1,047% from the bounce to $5,620.
The narrative of reaching an absolute bottom near the 200W MA is supported by Bitcoin’s famous “rainbow chart”. It delineates the logarithmic regression zones, color coded according to the rainbow spectrum, best to buy, hold or sell.
In previous bear markets, BTC has always hit the blue and purple areas of maximum sell and buy opportunities. It’s no different now that BTC is in the last purple “fire sell” zone since the June decline.
First cross in history
However, the current situation on the chart is slightly different. Bitcoin failed to hold the 200W MA level and has already closed more than 10 weekly candles below (blue circles above). Moreover, the attempt to get back above this moving average in mid-August proved unsuccessful. This led to a retest and rejection, which is a bearish signal.
However, the most alarming signal, which appears for the first time, comes from the 20W MA. This medium-term moving average has moved below the 200W MA (red arrow). The drop below is not yet confirmed, as the weekly candle is not yet closed. However, it seems inevitable this week or next week.
In the historical analysis, we see that neither in 2015 nor in 2019 there was a fatal cross between the MA 20W and the MA 200W (green arrows). The only thing that can be seen is that after the maximum approach of these two lines, there was a significant increase in the price of BTC. Of course, this is because both moving averages are lagging indicators, so they refer to past price action and do not predict the future.
200W MA and correlation with the S&P 500
Cryptocurrency analyst @el_crypto_prof tweeted a chart of Bitcoin in which he also highlighted the death cross of the 200W MA. However, on its chart, the 20W MA crosses over the 200W MA for the second time in history. Indeed, he established moving averages for the ratio between the price of Bitcoin and the S&P 500 index.
In a comment on the chart, he points out that the death cross happened in 2015, and that it happened after the all-time low was reached. Moreover, he adds, “only a few months later, one of the biggest bullruns in $BTC started.”
The chart above not only gives an additional interpretation of the death cross we analyzed, but also shows the long-term dominance of BTC in the traditional stock market. The same aspect was pointed out today by the famous @100trillionUSD, creator of the Stock-to-Flow model for Bitcoin.
In his tweet, PlanB admits that BTC’s correlation with the SPX is strong today, but the magnitude of historical increases is unmatchable. According to his calculations, over the same period, SPX has increased by 4x and BTC by up to 2000x, which he calls “completely different worlds”.
Of course, we should not expect such a difference of an order of magnitude today, if only by the much larger market capitalization of the cryptocurrency and bitcoin industry. However, the bottom line is that BTC remains a more favorable long-term investment than SPX, and the 200W MA zone is a great place to get started.
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