Cryptocurrencies are volatile currencies, and bitcoin is no exception. In 2017, Bitcoinwentthrough a period of rapid rise starting at $1000 in January and closing at $20,000 in December. In 2018, however, the cryptocurrency has fluctuated greatly, at one time plummeting to $5000.
Such volatility explains why so many people think these prices are a bubble and therefore not sustainable in the long run. Bitcoin’s downward trend is predicted to continue, hitting what stock investors often refer to as a Death cross. A death cross happens when the 50-day moving average (MA) crosses below the 200-day moving average.
Previous Bitcoin death crosses
Bitcoin has suffered three death crosses in the past.The first death cross was confirmed in April 2014 after bitcoin hit the floor at $340. Fortunately, this was short livedandits prices shot up to $680 by June 2014.
The second death cross took place in September 2014 and continued to drop for four months until January 2015 by which time it had fallen by 65% to $170. Soon after that, there was a gradual recovery.The other death cross was experienced in September 2015 when prices nosedived to $162. This did not last for long fortunately and the prices were able to pick despite the cross signal.
Consequences of a death cross
When a death cross is confirmed, the panic created causes either a major sell-off or a HODL (Hold On for Dear Life). The last three death crosses as explained above did not yield major sell-offs and it is likely that this is what caused the aversion to a total collapse situation.
Sometimes these are bear traps to make people sell off so that opportunistic investors can buy during this low price periods and sell off when the prices pick again.
To HODL would be a good strategy though risky. If indeed the death cross alarm is actually a bear trap, and the prices hit the floor and still continue to drop below the floor, then even the bear trap would trap would trap the bears who had bought the cheap bitcoins would be holding valueless assets that would have actually collapsed.
The most alarming scenario is that according to a Bloomberg article published in December 2017, it was revealed that 40% of all bitcoins in circulation are held by only 1000 people. Also, a minority, precisely 100 bitcoin address holders, have been reported to have control of 17.3% of all the supply of bitcoins.
What are the implications of this state of affairs? It simply means that if a few addresses decide to sell off their holdings, then an effectual crippling would have been concluded. It would only take a person or two with monstrous holdings to paralyze bitcoin by a sell-off.
Death Cross strategies to apply
Though it is understandably hard to maintain focus, it is better to HODL than sell off immediately. If history is anything to go by, a recovery no matter how long that may take, a death cross eventually makes a comeback.
It is advisable to view a death cross situation as you would winter. Despite how long a winter season may take, spring will ultimately arrive and eventually summer. The best shield is to use these periods to find out how to buy low and hold for a recovery. This should be the mindset of a HODLer.
The other strategy would be to explore other markets. Prudence dictates diversification which would create a fallback situation in case things get out of hand.
Why everyone talks about death cross
The decline in bitcoin prices has been the most severe in its history since 2011. It has lasted for three months already and who knows how much longer? It is then natural that people will talk. There are diverse views of this death cross situation currently doing rounds. Let us categories these views into two – the hopefuls and naysayers.
They believe that the current situation is a bearish sentiment. This means that it is a created situation and can be corrected with market dynamics being set into play. The past crashes have always made a comeback. Here is a list of previous crashes:
- 1 Lost 30% from January 12, 2012, to January 27, 2012
- Lost 57% from August 17, 2012, to August 19, 2012
- Lost 33% from March 6, 2013, to March 7, 2013
- Lost 35% from March 21, 2013, to March 23, 2013
- Lost 83% from April 10, 2013, to April 12, 2013
- Lost 50% from November 19, 2013, to November 19, 2013
- Lost 87% from November 30, 2013, to January 14, 2015
- Lost 34% from March 10, 2017, to March 25, 2017
- Lost 33% from May 25, 2017, to May 27, 2017
- Lost 39% from June 12, 2017, to July 16, 2017
- Lost 40% from September 2, 2017, to September 15, 2017
- Lost 30% from November 8, 2017, to November 12, 2017
- Lost 70% from December 17, 2017, to February 6, 2018
There is a general feeling that things are looking up and that the nosedive was a cooling off effect from the heat generated by the monstrous price shot. On 1st April 2018 the prices of bitcoin were at a low of $6,443 and the following day on 2nd April, it had strengthened by 2.6% to $6,990. This trend, though gradual is expected to hold ground and though a long way from the $20,000 in December 2017, it is not all doom.
With this particular death cross, there has been a breakdown of technical analysis which relies on the premise of market psychology that people are predictable in the way they conduct business. With a broken analysis system, there has been a general freaking out as people evade conducting business blindly.
This group of people wants to stick to hard facts to do with cash flow statements and the figures on the balance sheets.
In conclusion, death crosses are not only to be found in bitcoin trading but in all forms of asset trading in general. They make investors delirious and prone to emotional decision making. Whether the death cross will be survived or ultimately collapse, the ride has been a bumpy one with very awesome highs and catastrophic lows.