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Bitcoin At Risk of “Faking Out” As Price Hovers Near $60,000, Analyst Asserts

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Yashu Gola



A recent wild run-up in the Bitcoin market faces risks of faltering as traders hesitate to buy the cryptocurrency at higher rates, asserts Marc Principato, the executive director at Green Bridge Investing, a cross-market investment management firm.

Bitcoin to $50,000?

The analyst warned in a note to followers that BTC/USD could pare its latest gains, calling the 58,200-62,100 area as a reversal zone. He added that traders could confirm a rising sell-off sentiment if bitcoin’s daily candles form lower lows. Should that happen, the cryptocurrency risks falling to as low as $50,000.

“If I am going to look for a new swing trade long, I would be most interested in setups that unfold there,” said Mr. Principato as he warned traders against opening new bullish positions at the recent highs.

Bitcoin, cryptocurrency, BTCUSD, BTCUSDT

Bitcoin trade setup, as presented by Marc Principato. Source: BTCUSD on TradingView.com

The analyst cited the prominent Elliot Wave theory to guess the next crucial Bitcoin levels. He noted that the first sell-off from $57,000 could spark a broad correction move.

“These are very tricky and can even make a new high (like we see now) before they become obvious,” Mr. Principato wrote. “If the swing from 57K to 45K was Wave A, this current run from 45K to 61K may be Wave B (typically 3 legs which are now clear in the formation).”

“Confirmation will be in place if the 50K support is taken out. If a Wave C unfolds from here, it can take price back to 37K potentially over the next few weeks,” he added.

Fundamental Push

Even with his downbeat outlook, Mr. Principato admitted that he is not bearish on Bitcoin.

His statements followed the cryptocurrency’s relentless upside run that followed after its pandemic-led crash to below $4,000 in March 2020. The BTC/USD exchange rate recovered sharply after the Federal Reserve slashed its benchmark lending rates to near-zero and launched an open-ended bond purchasing program to protect the US economy.

The Bitcoin price recovery received further boost from the US government’s trillions of dollars worth of stimulus programs. Investors argued that the cryptocurrency served as a better hedging asset than cash or bonds. These traditional instruments offered meager returns due to oversupply and artificial backing from the US central bank.

As a result, Bitcoin logged a 1,500 percent bull run from its mid-March nadir of $3,858 (data from Coinbase).

With most of fundamental factors still in place, led by US President Joe Biden’s additional stimulus package worth $1.9 trillion and Fed’s commitment to purchase $120 billion worth of government and corporate debt every month, investors have been flocking into Bitcoin to seek safety from higher inflation risks.

“Investment by institutional investors and corporates is increasing. It’s what I call the financialisation of bitcoin,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, told Reuters.



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Bitcoin

Not sure if the bulls are back? Here’s how the golden cross spots trend reversals

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Cointelegraph By Rakesh Upadhyay

The most important aspect in trading is to correctly identify the long-term trend. Once this is done, the rest of the steps are not very difficult because all a trader needs to do is look for buying opportunities in an uptrend and selling opportunities in a downtrend. 

In reality, many traders complicate the process by waiting for lower levels to buy in a bull market and missing a large portion of the rally. Then, when the trend reverses and the price starts falling, the same traders start buying, which usually results in losses.

To avoid this pitfall, traders can incorporate the use of key moving average convergence patterns in order to have a better gauge of market momentum and the direction of the trend. In last week’s article, we reviewed the Death Cross, and this week we will look at the golden cross pattern. This setup can help keep traders at bay in a downtrend and give them a green signal to start buying when the trend turns bullish.

Let’s investigate this pattern and learn how to use it when trading.

What is a golden cross and how does it form?

A golden cross is a setup that signals a possible change in a bearish downtrend. It is formed when a faster period moving average, usually the 50-day simple moving average, crosses above the longer-term moving average, generally the 200-day SMA.

BTC/USD daily chart. Source: TradingView

In a downtrend, both the 50-day SMA and the 200-day SMA are sloping down. However, when the price reaches an attractive valuation, long-term investors start accumulating, which arrests the pace of the decline. As more investors start buying, the trend starts to turn up.

A sustained up-move results in the 50-day SMA changing its direction from down to up. However, the 200-day SMA is slower to respond, hence when it is either falling or has flattened out, the 50-day SMA rises above it, forming the golden cross.

When a golden cross forms, it is a sign that the downtrend has ended and a new uptrend could have begun.

However, like every setup, the golden cross is not foolproof. It gives false signals several times but with a few filters, traders may reduce the whipsaws.

Related: Here’s 5 ways investors can use the MACD indicator to make better trades

A profitable golden cross

BTC/USD daily chart. Source: TradingView

Bitcoin (BTC) bottomed out at $3,858 on March 13, 2020, and the most recent golden cross formed on May 21, 2020, when the price closed at $9,061.96. That means, the BTC/USD pair had already moved 134% from the lows by the time the golden cross confirmed a change in trend.

Inexperienced traders may have felt the price has run up too fast and would have waited for a deep correction to happen before buying. However, when a trend changes, it rarely gives an opportunity to buy at much lower levels as was the case here.

The rally never looked back and it hit an all-time high at $64,899 on April 14, 2021, a massive 616% gain from the level where the golden cross formed. This shows that the trader who just bought and held after the formation of the golden cross would have earned huge returns.

However, every golden cross does not provide such outsized returns and sometimes traders fall victim to whipsaws.

A failed golden cross

Bitcoin dropped from a local high at $13,868.44 on June 26, 2019, to a local low at $6,430 on Dec. 18, 2019. The golden cross formed on Feb. 18, 2020, when the pair closed at $10,188.04.

BTC/USD daily chart. Source: TradingView

However, traders who bought after the golden cross formed may have suffered quick losses as the pair plummeted to $3,858 just a few days later. This shows how traders may sometimes get caught on the wrong foot by just buying after the golden cross.

Related: Unsure about buying the dip? This key trading indicator makes it easier

Filters can when the golden cross throws a false signal

Traders could avoid buying if the golden cross forms when the 200-day SMA is still sloping down. They can wait for the 200-day SMA to flatten out or turn up before buying as that may reduce the whipsaws.

EOS/USDT daily chart. Source: TradingView

As an example, EOS formed a golden cross pattern on Feb. 8, 2020 when the price was at $4.76. This price cleared the filter as the 200-day SMA had flattened out. However, had traders taken the trade, it would have turned into a loss as the EOS/USDT pair topped out at $5.49 on Feb. 17, 2020, and then plunged sharply to $1.35 on March 13, 2020.

The second golden cross on Aug. 22, 2020, did not clear the filter as the 200-day SMA was sloping down when the pattern formed. This would have kept the bulls from getting sucked into this trade.

The third golden cross on Dec. 12, 2020, cleared the filter but it would have hit the stop-loss as it breached the strong support at $2.20 on Dec. 23, 2020. Finally, the fourth golden cross that formed on Feb. 08, 2021, turned out to be profitable.

The above example shows that when the price is stuck in a range, the golden cross does not act as the ideal indicator. Therefore, traders may add another filter to buy only after the price breaks out of the range. This may reduce the whipsaws further and help traders buy only in uptrends.

When a cryptocurrency is in a downtrend, traders may wait for the golden cross to occur before starting their purchases. This could keep traders out of trouble in a falling market.

After the golden cross sustains and a new uptrend is confirmed, traders may look for buying opportunities. Among the many possibilities, one that was highlighted in an earlier article to buy on dips to the 20-day EMA or the 50-day SMA could come in handy.

Key takeaways

A golden cross can confirm that a downtrend has ended and a new uptrend could have begun. Until a golden cross forms, long-term investors may avoid cherry-picking as that may result in losses in a downtrend.

However, like every other pattern, the golden cross is not perfect. It may result in whipsaws if the coin enters a consolidation during the bottoming formation. Therefore, traders must take precautions to avoid being sucked into bull traps.

Once the uptrend is established after the golden cross, traders may look for buying opportunities and stay with the trend till a reversal is signaled.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.