Bitcoin (BTC) price action appears to be approaching a “death cross,” but one crypto analyst believes it “might not be that fatal” based on historical patterns. Instead, it could be a bear trap before Bitcoin enters a “super bull rally,” which is theoretically the case given BTC’s seven-year super cycle.
A dead cross is a bearish signal that occurs when the 50-day simple moving average (SMA) of an asset’s market price falls below the 200-day SMA.
Bitcoin’s 50-day SMA is currently at $62,141 and is declining, suggesting a potential crossover with the 200-day SMA at $61,676.
The upcoming crossover suggests that Bitcoin’s short-term momentum is underperforming its long-term price momentum, which tends to heighten fear and impulsive reactions among investors.
From a historical perspective, death crosses have a poor track record of accurately predicting future price trends. They often lead to “bear traps”, which are reversals in a downtrend that can force traders to abandon short positions as losses mount.
To look into this more concretely, Bitcoin analyst Timothy Peterson shared a historical chart showing BTC price performance in the one to two months following a “death cross.”
Peterson said that “Bitcoin’s ‘dead crosses’ are not that deadly,” explaining that this has happened eight times since 2015, and that 67% of those times, the Bitcoin price rose two months after the dead cross occurred.
“This has only happened eight times since 2015. What happens next? After 60 days, Bitcoin is up 62% of the time. The median return was +18%.”
On the BTC/USD daily chart above, the Bitcoin price confirmed a dead cross on September 12, 2023, which triggered a major bear market, and BTC bottomed at $24,000 on the same day before making a long-term uptrend to a new all-time high recorded on March 14, 2024.
Therefore, it is important to note that the dead cross cannot be trusted as a standalone indicator.
At the time of publication, Bitcoin was trading at $55,056. Failing to break above the resistance level around $56,000, BTC could revisit its recent low of $49,050.
Related: Three key Bitcoin price indicators show a lack of enthusiasm among traders.
Bitcoin’s Impending ‘Super Bull Rally’
Trader Tardigrade, a pseudonymous trader, has backed up the bear trap theory by claiming that Bitcoin’s recent price drop to $49,000 is the start of a new “super bull rally” for BTC.
In a post on X on August 6, the trader shared his analysis from 2013, saying the recent sell-off was “finally breaking below support,” similar to the previous supercycle that lasted from 2016 to 2018.
According to analysis by trader Tardigrade, the Bitcoin price showed a similar movement in 2016, with BTC entering a parabolic uptrend that peaked in 2017. According to the analyst, the recent wick printed below the support level could be a signal for another all-time high in the coming years.
However, it is worth noting that the proposed pattern has only occurred once and may need to be confirmed in a monetary cycle. Also, the “heart drop” may have occurred under different macroeconomic and geopolitical conditions, so the situation may not unfold in the same way as in 2013-2018.
Meanwhile, DeFi Report founder Michael Nadeau said he remains bullish despite last week’s events.
“The setup feels similar to September/October 2020, when Paul Tudor Jones called Bitcoin “the fastest horse ever” and Michael Saylor started buying BTC via MicroStrategy’s balance sheet.”
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.