Bitcoin is nearing the cross of death as Goldman expects a Fed rate hike this year. Death Cross's past record as an indicator of major dips has been mixed.
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| Bitcoin Approaches Death Cross as Goldman Foresees 4 Fed Rate Hikes This Year |
They call it bitcoin's "death cross", a bearish indicator that appears when the 50-day moving average (MA) falls below the 200-day moving average.
The disturbing chart appears to be confirmed this week amid growing concerns about a faster withdrawal of liquidity by the US Federal Reserve (Fed), a bearish move in bitcoin, and asset prices in general.
According to Bloomberg, Goldman Sachs expects the Fed to increase financial costs at least four times by the end of 2022, compared to the previous forecast of three rate hikes. The investment banking giant also expects the central bank to reduce its balance sheet starting in July.
The US job market report on Friday, which showed the unemployment rate fell to 3.9%, prompted the Fed to hike interest rates along with the end of asset purchases in March. Investors estimate the possibility of a 25 basis point rate hike in March to 73%, up from 61% last week, according to CME Group's FedWatch tool.
Fears of an aggressive Fed gripped the bitcoin market at the end of the last quarter after the central bank focused on containing the spike in employment inflation. In December, the Fed announced at least three rate hikes by the end of 2022 and the end of its asset purchase program in March.
Bitcoin peaked at nearly $ 69,000 on November 10 and has dropped nearly 40% since then. The cryptocurrency fell more than 12% in the past seven days through January 9, recording its largest weekly decline since the beginning of December. The impending cross of death, coupled with the bitter macroeconomic outlook, could reinforce the overall bearish sentiment.
That said, the technical indicator's past as a predictor of bear markets is mixed. According to Kraken's research, many previous Bitcoin crossovers, including those from 2014 and 2018, have coincided with "a sell-off in the following days or a sustained macroeconomic downtrend that confirmed a bear market."
However, the death crosses seen in June 2021, late March 2020, and October 2019 were werebear traps or false signals that marked key price lows. The consolidation seen after Death Cross in mid-June 2021 ended with another bull run, as shown in the image shown.
Moving average crosses are unreliable as standalone indicators as they are based on historical data and tend to lag behind prices. The market is often oversold and a rebound is expected before the crossover is confirmed, as was the case last June and the end of March 2020.
As of this writing, bitcoin has changed hands at nearly $ 42,100, which is a 0.5% gain for the day.
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