Fears of a prolonged selloff have been sparked by the recent drop in Bitcoin (BTC), which saw its price fall from $47,358 down to $43,178.
Independent market analyst Nunya BIZZIN highlighted a bearish fractal in Bitcoin’s weekly charts regarding its 21-week exponential moving mean (EMA).
The cryptocurrency closed below this support zone 18 times, but maintained its bullish bias only 4 times. This is evident by the vertical dotted lines in the chart below.
Daily price chart BTC/USD with its 21-week EMA. Source: Nunya Bizniz, TradingView.com
The remaining cases saw Bitcoin prices drop to below the 21-week EMA. This was despite a fake bearish breakout that occurred in August 2015, which led to a “tremendous bull market,” according the analyst.
Bitcoin’s recent dip below the wave level in May 2021 led to prices falling below $30,000 for only the second time since Jan 2021. However, the crossover didn’t lead to a complete bearish collapse. Instead, traders bought the dip at $30,000 and drove the prices up above $50,000.
Overall, however, Bitcoin prices falling below the 21-week EMA caused an extended selloff of almost 78%.
Bitcoin falls below the 21-week EMA again
Bitcoin closed at $43,178 for the week ended Sept. 26, alerting about its 19th historic decline below the 21-week EMA (which was approximately $43,502 at the weekly closing).
Although the fractals predicted a negative outcome, a closer look at the relationship between 21-week EMA (EMA) and 50-week simple movement average (SMA), indicated that a possible bearish outlook would require further validation.
This is mainly due to traders’ immediate reactions to the moving averages. This is especially true when the 20-week EMA, the green wave, closes below its 50-week SMA (theblue wave). The so-called Death Cross indicator was previously associated with further falls in the Bitcoin market.
Bitcoin price weekly chart with 20-50-MA death cross Source: TradingView.com
The BTC/USD exchange rate fell below its 21-week EMA ($8,041) during the week that ended Jan. 29, 2018. However, it retained its upside bias until its close below the blue wave. The pair eventually reached its 200-week SMA (approximately $3,187).
Similar to the death cross of 20-50 MA in March 2020, it occurred just a week before the notorious Covid-19 selloff that was led by the Covid-19-led global market crash. Bitcoin closed at its 200-week SMA ($5,512), but bounced back to new records in the sessions.
Related: JPMorgan CEO claims Bitcoin prices could rise by 10x, but he won’t purchase it
It appears that Bitcoin’s death cross between its 50-week SMA and 20-week EMA could cause the next selloff crisis. The ultimate downside target is located near the 200-week SMA (around $15,000.
The Fibonacci levels of $34,712 retracement and $27,580 could prevent Bitcoin prices from reaching the 200-week SMA.
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