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What You Should Know About the Death Cross in Crypto Trading

Cryptocurrencies today account for a trillion-dollar ecosystem whereby investors can leverage transparency, anonymity, and security in their financial endeavors. Although, the major downside comes when attempting to analyze the values of digital assets, especially with the volatility tendencies. 

Due to this reason, it is necessary to use several indicators which predict the possibilities of upcoming bearish or bullish trends in the market. One type of indicator traders employ is the death cross pattern which usually represents the possibilities of an incoming sell-off. 

How Do Death Cross Patterns Work?

Death Cross patterns are technical patterns formed on price chats. These patterns outline the long-term performance of stocks, cryptocurrencies, or markets against the rapid price shifts. Thus, a death cross pattern develops in a situation where the two lines representing the variables intersect.

The death cross pattern occurs when the short-term moving averages of digital assets go below their long-term moving averages. The prediction method applies 50 and 200-day moving average values to do the corresponding readings. 

So, it means that the pattern forms when the 50-day moving average of digital assets falls below their 200-day moving average. Moreover, this pattern can thus act as a predictor or future indicator of price movements for cryptocurrencies.

A gold cross is another type of indicator which applies a different concept from death cross patterns. Here, gold crosses represent great indicators of positive outcomes for the cryptocurrency market. In such cases, the market is positive, prices grow, investor confidence is high, and everyone has higher expectations. 

A Good Sign or Bad Sign?

Death cross patterns prove to be effective indicators in predicting bearish financial markets, which took place in 1938, 1974, and 2008. The pattern interprets a drastic price change compared to the long-term performance of digital currencies.

Moreover, the death cross pattern is identifiable as it forms an X sign when short-term averages plunge below long-term averages. The crypto-verse uses the same concept, which signals the potential development of market crashes.

Occurrences of the Death Cross Patterns 

Death cross patterns serve as indicators of negative outcomes in the market. Such crashes are visible in several instances throughout history, with some cases occurring in recent years. While the death cross patterns show a possible crash in the crypto market, the long-term projections may be more complicated than the patterns display. Thus, while the method is usually accurate, it involves some margin of error in mapping out these outcomes in the long term.

In 2020, a death cross pattern appeared on charts following the plunge in Bitcoin’s value in March of the same year. The plunge lasted over six days and resulted in a 60% decline in the value of the cryptocurrency. The dip in prices was critical in presenting the future price direction of the cryptocurrency before a resurgence in the next year. 

Fast forward to 2021, a death cross pattern formed after Bitcoin’s averages intersected, with the 50-day value being lower than the 200-day value. The price drop erased the 2021 gains as the prices fell to $29,026. 

Factors Leading to a Death Cross Pattern

The recent dip in Bitcoin’s value is encouraging uncertainty and pessimism amongst investors. As a result of the death cross, some investors remain on edge and may move to sell their assets to avoid the downturn’s worst effects. The decline attributes to several contributors, such as China’s crackdown on cryptocurrencies and the influence of industry moguls. 

China’s Crackdown on Cryptocurrencies 

In China, the recent change in the government’s stance resulted in the crackdown of the digital asset sector. During the crackdown, residents couldn’t access any form of crypto services from financial institutions. Moreover, the country also initiated a crackdown on crypto mining under the pretext of maintaining climate change goals. It ensured the state’s capital control and improving market stability by mitigating financial risk. 

Thus, this change in direction affected the market given China’s extensive role as a driving force in the world’s crypto mining sector. Many cryptocurrency owners either found places overseas to operate or liquidate their investments. 

Influence of Moguls 

Over the previous year, influential figures dealing with key sectors of the economy impacted the volatility rates of Bitcoin. In the current age, figures such as Elon Musk impact the market due to the headlines applied. 

These headlines result in a rise in volatility levels or create market uncertainty for investors. Hence, it brings a negative outcome in the global crypto market.

Final Word

Investors become doubtful over the future of cryptocurrencies due to the formation of death cross patterns in recent times. This pattern, indicative of a dip in prices, will most likely result in steep and sudden financial crises. 

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On one side, this outcome may be unfavorable for the short-term crypto market. In other scenarios, this dip may also signify a better outlook for Bitcoin in the future since dips point to a potential climb back in the market. As a result, it raises caution to cryptocurrency holders who weigh whether to sell or remain with their investments. 

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