This signal appears for the first time in the history of Bitcoin (BTC). The 20-week moving average (20W MA) has just crossed below the 200-week (200W MA). Although the BTC price has never experienced such a situation, perhaps the correlation with the traditional stock market (SPX) will give us some clues.
In this article, BeInCrypto takes a look at the first-ever signal that is just now being generated on Bitcoin’s weekly chart. The 20W MA has made an unconfirmed death cross with the 200W MA. In traditional markets, this event is usually a confirmation of a long-term bear market. However, it is the correlation with the S&P 500 (SPX) that may help us give this signal a more bullish interpretation.
Buying around 200W MA
On the long-term logarithmic chart, we see that the BTC price has rarely reached the 200W MA area (blue line). This happened only a few times in history, during the process of generating the absolute bottoms of previous bear markets (green circles). Moreover, historical declines usually did not lead to weekly candles closing below the 200W MA, although there were singular exceptions to this.
Therefore, until recently, it was thought that the 200W MA level was a solid indicator of the BTC bottom and represented an excellent buying opportunity. The increases that followed hitting this area in the past were impressive:
- 2015: up 8313% from the last bounce at $230,
- 2019: up 313% from the last bounce at $3351,
- 2020 COVID crash: up 1047% from the bounce at $5620.
The narrative of reaching an absolute bottom near the 200W MA is supported by Bitcoin’s famous “rainbow chart.” It delineates the areas of logarithmic regression, color-coded according to the rainbow spectrum, best for buying, holding, or selling.
During previous bear markets, BTC always reached the blue and purple areas of maximum sales and buying opportunities. It’s no different now that BTC is in the final purple “fire sale” area since the June declines.
First cross in history
However, the current situation on the chart is slightly different. Bitcoin has failed to hold the 200W MA level and has already closed more than 10 weekly candles below it (blue circles above). Moreover, the attempt to return above this moving average in mid-August proved unsuccessful. It led to a retest and rejection, which is a bearish signal.
However, the most alarming signal, which appears for the first time ever, comes from the 20W MA. This medium-term moving average has crossed below the 200W MA (red arrow). The drop below is not yet confirmed, as the weekly candle has not yet closed. However, it seems inevitable this week or next week.
In the historical analysis, we see that neither in 2015 nor in 2019 has there been a death cross between the 20W MA and the 200W MA (green arrows). The only thing that can be seen is that after the maximum approach of these two lines, there was a significant increase in the price of BTC. Of course, this is due to the fact that both moving averages are lagging indicators, so they refer to past price action, and do not predict the future.
200W MA and correlation with the S&P 500
Cryptocurrency analyst @el_crypto_prof tweeted a chart of Bitcoin in which he also pointed out the death cross of the 200W MA. However, on his chart, the 20W MA crosses the 200W MA for the second time in history. This is because he drew moving averages for the ratio between the price of Bitcoin and the S&P 500 index.
In a comment to the chart, he points out that the death cross happened back in 2015, and it happened after the absolute bottom was reached. Moreover, he adds, that “only a few months later, one of the biggest bullruns of $BTC started.”
The above chart not only gives additional interpretation to the death cross we analyzed but also shows the long-term dominance of BTC over the traditional stock market. The same aspect was pointed out today by the famous @100trillionUSD, creator of the Stock-to-Flow model for Bitcoin.
In his tweet, PlanB admits that BTC’s correlation with the SPX is strong today, but the magnitude of historical increases is incomparable. According to his calculations, over the same period, SPX rose 4x and BTC as much as 2000x, which he calls “completely different worlds.”
Of course, such an order of magnitude difference today is not to be expected, if only by the much larger market capitalization of the cryptocurrency sector and Bitcoin. However, the conclusion is that BTC remains a more favorable long-term investment than SPX, and the 200W MA area is an excellent place to jump in.
For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.