Bitcoin’s price is nearing a critical level as the 50-day moving average is close to the 200-day moving average. The so-called death cross typically results in significant price volatility, with history suggesting two possible outcomes.
Scenario 1: Bitcoin Goes Down Hard
Ever since BTC peaked in mid-April at $65,000, the cryptocurrency has failed to continue or even maintain its run. Just the opposite, the asset has lost roughly 50% of its value in less than two months.
By doing so, the short-term moving average (50-day) is rapidly closing in on its long-term – 200-day MA. Should the 50-day MA break below the 200-day MA, then it would result in the so-called death cross.
The creator of the popular stock-to-flow model, PlanB, highlighted the possibility on Twitter and provided two possible scenarios based on BTC’s historical performance.
What do you think about a possible “death cross” (when 50day moving average goes below 200DMA)?
1) Will 50DMA indeed cross 200DMA, like it did after 2013 and 2017 ATH?
2) Or will 50DMA bounce off 200DMA, like it did during 2013 and 2017 bull runs?
Poll below pic.twitter.com/Y1RTtPM4H5
— PlanB🇸🇻 (@100trillionUSD) June 8, 2021
The adverse development would mimick the movements following the records set in 2013 and 2017. After each, bitcoin went into prolonged bear markets, and its price further declined by about 50%.
Interestingly, another popular analyst, Rekt Capital, recently outlined a similar possible scenario. He predicted that the downside, in this case, could take BTC down to around $18,000.
Strategists from Oanda Corp and Evercore believe $20,000 is the most significant support. In case BTC breaks below it, the asset could head much lower, they argued.
Scenario 2: Bitcoin Bounces Off
Although most analysts envision the aforementioned scenario as the more probable one, PlanB also outlined a second possibility. During the bull cycles in 2013 and 2017, the 50-day moving average bounced off the 200-day moving average, and the runs continued, as the graph above demonstrates. To do so, though, BTC would have to gain serious value by the end of June:
“If June close will be $54,000 (or higher), and July, August also $54,000 (or higher), then 50DMA will bounce off 200DMA and stay above 200DMA. So a nice short squeeze and V-shaped bounce back to $54,000 (+69%) would result in then bounce back scenario.” – PlanB explained.
While this may sound like the less plausible scenario, most participants in PlanB’s poll actually see it happening instead of the price dump.
Mati Greenspan, the founder of Quantum Economics, noted that the death cross collision “seems unavoidable at this point.” Nevertheless, he also sees a possible reversal, “If prices bottom out around here, we can probably expect a strong rally to resume once the market is ready for it.”