Bitcoin (BTC) Death Cross Trap And The Road Ahead

Bitcoin (BTC) recently pumped 43% in two days just around a time when everyone was expecting a “death cross” to play out. The mistake that most retail traders make is that they are impatient. They enter trades without confirmation. When they saw a potential “death cross” in the making, many of them entered bearish trades and this became an opportunity for the market makers and the whales to liquidate them. In our analyses around the time, we warned that this might be more of a trap and less of a death cross. Even if it had been a death cross, it would have been an inconsequential one as the 200 EMA was not falling while the 50 EMA was. This in what I like to call a forced bearish setup because it is forced to come to fruition rather than allowing it the time it needs.

Such forced bearish setups are misleading most often and as we can see in this case it was misleading in an unprecedented way. Sentiment was quick to turn from negative to positive after that pump and now that bears were forced out of the market, the bulls became more confident. Most retail traders still seem quite optimistic even though BTC/USD has closed below the 50 Day EMA for the past two days and keeps testing the 200 Day EMA. The more a level is tested, the higher the probability that the price is eventually going to break it. In this case, if we see the price keep on testing the 200 Day EMA, Bitcoin (BTC) risks a sharp decline down to the bottom of the descending channel. However, the bulls seem unconcerned by any of this as they keep expecting a bullish breakout from current levels.

The big picture from the cryptocurrency market points to a major decline in the weeks and months ahead. However, that is not the only big picture that points to that conclusion. The 4H chart for EUR/USD shows that the US Dollar (USD) might continue to gain strength for the foreseeable future. If we see a decline below the 61.8% fib extension level then that would be even more bearish for Bitcoin (BTC) because this forex pair has a strong impact on BTC/USD.

Despite any short term bullishness in the market, we are now very close to the beginning of a major downtrend. The probability of the price breaking out of the current descending channel at this point has decreased further after recent developments. The 200 Day EMA is going to be an important level to watch for. If the price ends up closing below it, we might see the downtrend begin aggressively with potential declines of 20% and more in the near future. The potential death cross and the pump that followed it have certainly delayed the downtrend but they have barely changed the big picture. As long as BTC/USD remains within the current descending channel, we expect it to decline towards $4,500 in the weeks and months ahead.  

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