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Volatility has come back into the financial markets, and nowhere have the ups and downs been more evident than in the cryptocurrency arena. Bitcoin has gone from roughly $1,000 this time last year to more than $20,000 early in 2018, only to fall below $7,000 recently.
Most recently, crypto traders have started talking about a phenomenon that they see as worrisome. Known as the "bitcoin death cross," this signal has led some to believe that more tough times are ahead for the first-moving cryptocurrency. Yet while some market participants will inevitably pay close attention to the bitcoin death cross, most of those who see themselves as longer-term investors in the prospects for bitcoin and its peers shouldn't let it change their views on the cryptocurrency, whether positive or negative.
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What is a death cross?
There's nothing about a death cross that's unique to bitcoin. Many traders use technical analysis to make decisions about whether to buy or sell an investment asset, applying the discipline equally well to stocks, exchange-traded funds, futures markets, and other asset classes. Looking at charts of price movements can give them insights that they then use to seek to predict future rises or falls in the price of whatever assets they're looking at.
A death cross specifically refers to the relationship between moving averages of various lengths. Technical analysts often look back a certain period of time to generate moving averages, which can reflect trends more smoothly than simply looking at the daily jumps and slumps in the markets. When a shorter-term moving average falls below the level of a longer-term moving average, that "crossing" of the lines is called a death cross.
What happened with bitcoin
In this case, the bitcoin death cross refers to the fact that the moving average of past daily bitcoin prices looking back 50 days recently moved below the level of the corresponding 200-day moving average. Given the recent price movements of the cryptocurrency, the death cross was pretty much inevitable, because the two moving averages were between $9,000 and $9,500 and bitcoin had traded well below that level.
The official cross happened on March 31. The event happened during a long weekend in which prices stayed around the $7,000 mark for much of the period, pulling the 50-day average down more quickly than its 200-day counterpart.
Why bitcoin didn't flinch
Some feared that the death cross would lead to another round lower for the cryptocurrency. In the past, traders using technical analysis have used such signals to predict the beginnings of bear markets, especially after a long upward climb for an asset class.