Bitcoin Bear Trap: Death Cross Imminent?

This article was originally published on ETFTrends.com.

As has been widely documented, bitcoin is facing an array of technical challenges as it trades below $7,500 on Thursday morning, according to Coin Market Cap.

Those are the breaks for the largest digital currency, which has recently flirted with losses of 60% from its December peak.

Adding to the cryptocurrency's near-term vulnerability is that some technical analysts believe a death cross is imminent. A death cross occurs when a security's 50-day moving average cuts below its 200-day line. Such a scenario is close to happening with bitcoin, but some market observers believe a death cross could be a bitcoin bear trap.

“A bear trap is a false signal that the rising trend of a stock or index has reversed when it has not. A bear trap prompts traders to place shorts on the stock or index, since they expect the underlying to decline in value. However, instead of declining further, the investment stays flat, or slightly recovers,” according to Investopedia.

Treading Carefully With Bitcoin

In recent days, some traders and cryptocurrency market experts opined that bitcoin's bear market could be short-lived.

Some strategists are saying that the death cross could yield a big sell-off in BTC, possibly to as low as $2,800, a level last seen in September 2017. However, such fears are likely overstated, as the crossover tends to work as a contrarian indicator - that is, they tend to occur at the end of a big bear move, with prices rallying soon after,” reports CoinDesk.

Some market observers have even compared the current bitcoin bear market to the Nasdaq’s dot-com crash earlier this century. However, the cryptocurrency still has devoted followers and bulls, some of which believe the bear market is nearing its end. But that does not mean another epic rally is imminent.

In recent months, regulators around the world have stepped up scrutiny of digital currencies and related assets, including some blockchain investments. Morgan Stanley notes that bitcoin’s rally was far more rapid than that of the Nasdaq in the late 1990s and while bitcoin is not old (it debuted in 2009), the cryptocurrency has already experienced multiple bear markets.

Still, bitcoin's decline to bring the death cross into play could actually be a sign bears are running out of momentum.

“BTC had to drop by $14,000 (from $20,000 to $6,000) to push the 50-day MA so far towards the 200-day MA. Hence, it's likely that the bears will run out of steam by the time the actual death cross occurs,” according to CoinDesk.

For more information on the cryptocurrency market, visit our Bitcoin category.