The gold cross is one of the most popular traditional technical indicators that signal the continuation of a long-term bull market. Today it appeared on the Bitcoin (BTC) chart for the first time in 2021.
However, historical analysis shows that a gold cross is sometimes a wrong signal in the crypto market. It seems impossible to fully understand the significance of this event without mentioning the broader context of the crypto market and other conditions for the continuation of the bull cycle in BTC.
What is Golden Cross?
A gold cross is a pattern used in technical analysis where the short-term moving average is above the long-term moving average (MA). Its opposite is the Death Cross, where the reverse process takes place. The former confirms an uptrend, while the latter indicates a downtrend.
In technical analysis, the MA 50 and MA 200 crossovers represent the most widely used gold cross. Since these moving averages are time-limited, this event offers the potential to initiate or continue a long-term bull market.
Golden Cross | The source: Investopedia
It should be added that the gold cross is a trailing indicator that often confirms that market events have occurred. Sometimes it also creates false signals and price action goes in the opposite direction. Additional confirmation of the strength of this event is that the volume needs to get higher.
Interestingly, a gold cross is not the only factor determining the continuation of an upward trend, but part of a larger process. It consists of 3 phases:
- End of downtrend and exhaustion of selling pressure.
- Golden cross when the short-term MA crosses over the long-term MA.
- Continuation of the upward trend.
Golden Cross of Bitcoin
Today we saw a gold cross on the daily Bitcoin chart. The 50-day MA has exceeded the 200-day MA (green circle). In addition, the BTC price is trading above both moving averages today. It did so when Bitcoin created a bullish engulfing candle on September 14th and broke out above the 200-day MA.
BTC / USDT daily chart | Source: TradingView
On June 19, a death cross (red circle) was created due to the May crypto market crash, and Bitcoin price lost 20% from that event to the macro low of $ 28,600.
If the upward momentum implied by the golden cross continues, the volume will increase. So far we have seen the volume still declining since the crash in May (dashed line). However, if volume picks up and there is a significant breakout in the coming weeks, the golden cross will be confirmed and the long-term upward cycle could resume.
Three conditions for the bull market to continue
In one Video Recently analyst Benjamin Cowen gave his interpretation of the current golden cross. According to him, this event is one of three conditions that BTC will keep rising in price in the coming months. According to Cowen, there are three necessary but not sufficient conditions for the long-term upward trend to continue:
- BTC holds above the 20-week SMA and the 21-week EMA known as the bull market support band.
- Golden cross
- Retest the 20 SMA and 21 week EMA and confirm them as support.
According to the analyst, meeting these conditions is the strongest bullish scenario for Bitcoin given the continuation of the bull market. Currently, the 20-week SMA is $ 41,500 (yellow) and the 21-week EMA is $ 43,500 (purple). The second was checked twice: last week and this week.
Weekly BTC / USDT Chart | Source: TradingView
Therefore, in the current situation, all three conditions that Cowen has placed on the market for the continuation of the bull cycle are met. However, this does not mean that Bitcoin price will immediately rise to the ATH level of $ 64,900. Historically in particular, the golden cross does not always herald an immediate increase and is sometimes the wrong signal.
Golden cross in history
This is confirmed by some of the recent gold crosses on the BTC chart, which is sometimes a false signal. Between April 2019 and April 2020 the golden cross was created 3 times. The result is then:
- April 23, 2019, BTC is up 155%,
- February 18, 2020, BTC falls 61%,
- May 20, 2020, BTC is up 576%.
BTC / USDT daily chart | Source: TradingView
In addition, we also found 3 such events in the previous cycle between July 2014 and January 2018. Your results are as follows:
- On July 12, 2014, BTC fell 31%,
- July 15, 2015, BTC fell 31%,
- On October 28, 2015, BTC rose 6.512%.
BTC / USDT daily chart | Source: TradingView
Hence, historical analysis shows that the half golden cross created between 2014-2020 is a wrong signal. It is worth noting, however, that when Bitcoin continues the uptrend, it has made impressive upward moves, rising an average of 2,414%. In contrast, the average decline was 41%.
Conclude
The concept of the Golden Cross has become popular in technical analysis of traditional financial markets. The cryptocurrency market is characterized by higher volatility and many of the traditional analysis tools here are completely disabled or much less effective.
Regardless, however, Bitcoin’s current golden cross is a bullish signal, which is one of the prerequisites for a continuation of a long-term upward trend. If we add other indicators, such as Cowen analyst conditions or on-chain indicators, we can get a better picture of Bitcoin’s health and the market as a whole.
You can see the BTC price here.
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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
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