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Opinion

A Golden Cross in the bitcoin market – so what?

golden cross

There has been much talk of a ‘Golden Cross’ in the bitcoin markets. What is it, is it important, and if so, why?

Technical analysis is the study of price action, which reflects the psychology of the market. While some technical traders are prone to drawing arbitrary lines on charts, the only purpose of which is to support their pre-existing bias, there is logic to it when done right. TA is intended to be descriptive of a market, not predictive – it tells you where to pay attention and areas of risk and opportunity. It’s not a crystal ball.

With that in mind, what do we make of all the recent talk of a Golden Cross for bitcoin? A Golden Cross is simply when the 50-day moving average (MA) crosses up over the 200-day moving average. Bear in mind that MAs are lagging signals – they reflect what has already happened. So a Golden Cross merely shows that the price in the recent past (50 days) has been higher than the price over the longer-term past (200 days).

The Golden Cross and its opposite number, the Death Cross, are often used by position traders because they give a strong sense of where the market is going in the medium-term – the macro trend. Back in April last year, the crypto news was full of mainstream traders warning of the Death Cross – and indeed, the market did ultimately head lower.

These Crosses give a sense of the trend that has already been established or is being established. And the signals can be self-fulfilling. If so many traders are taking positions based on whether one line has moved over another, then inevitably that will impact the market. And so it is quite possible that we will see higher prices for BTC: in summary, the Golden Cross has shown that the market is recovering, and it’s a signal that many traders will factor into their decisions.

However, let’s not been too hasty. It is a lagging indicator – it shows what has happened already – and it’s not always 100% accurate. Zoom back to the summer of 2015, as bitcoin was recovering from its last bear market, and you’ll see there was a Golden Cross in July, followed by a Death Cross in September, and finally another Golden Cross at the end of October, before a renewed bull run.

We cannot know whether that will happen again. But it can happen – and so adopting a paint-by-number approach to trading with a Golden Cross may not yield the best results.

 

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