Bitcoin Nears New Golden Cross, But Beware Overdone Optimism

Bitcoin, trading back above $80.000, is on the verge of flashing one of its most well-known bullish signals. The cryptocurrency looks set to form a so-called golden cross on the charts in the coming days, a signal that investors have viewed for decades as an indication that a fresh upward move is in the making.

The timing of this new golden cross is striking. Bitcoin’s recent rally is being supported by growing capital inflows into stablecoins, particularly USDT, the world’s largest dollar-pegged cryptocurrency.

50-day average

A golden cross occurs when the 50-day moving average climbs above the 200-day average. In simple terms, the short-term trend is becoming stronger than the long-term trend. In traditional investment markets, from equities to commodities, this is regarded as a classic buy signal.

However, Bitcoin’s historical performance after a golden cross paints a mixed picture. Some have proved highly successful. The golden cross of February 2012 was followed by a price rise of more than 300% within twelve months. That of October 2015 also turned out, in hindsight, to be a major turning point.

Bitcoin then began a market cycle that culminated in late 2017 in the then record of nearly $20.000. The same pattern occurred in May 2020, when the cryptocurrency subsequently more than tripled in value.

But in both 2014 and 2015, the positive signal was undone within a few weeks by a death cross, the opposite pattern in which the 50-day average slips back below the 200-day average. More recent examples also illustrate how erratic the outcome can be. Some signals produced short-term gains of more than 40%, but lost their relevance once a new downtrend set in.

The chance of further price gains is therefore increasing, but it is not guaranteed.