Bitcoin down 10% to $8,800, what is next
On May 20, 2020, Bitcoin formed a Golden Cross, a widely-tracked, long-term bullish indicator for classic trend followers.
The pattern surfaced as Bitcoin’s 50-day moving average crossed above its 200-day moving average, marking the first of such formations since February 18 and seventh in the cryptocurrency’s lifetime. Moving averages paint an accurate picture of a price trend by using older data and removing noise created by intraday fluctuations.
Not a standalone incident, Bitcoin’s immediate pullback after forming the Golden Cross was similar to price moves from February. Back then, the cryptocurrency rallied circa 60 percent, tested its long-term Descending trendline, pulled back, and formed a Golden Cross.
But the bullish pattern did not help bitcoin sustain its rally. The price fell by as much as 61 percent by March 13, 2020.
While bitcoin was maintaining strong support near $9,000, it now risks completing the Feb fractal with an extended downside correction towards 50-day moving average (blue), followed by a retest of the 200-day moving average. These levels are inside the $8,000-$8,100 price range as of May 22.
Bitcoin’s Wall Street Exposure
The correlation comes as Bitcoin searches for its position in the broader asset allocation spectrum. The cryptocurrency achieved some recognition as safe-haven as the global economies entered a recession, with billionaire investor Paul Tudor Jones and Renaissance Technologies’ flagship fund admitting to having dipped their toes in the 11-year old asset.
Prominent fund managers explored Bitcoin despite rubbishing it earlier for its extreme volatility. But after the Coronavirus pandemic caused almost every asset to go berserk – even Gold – bitcoin started to look like a part of the Wall Street club.
That came evident with the cryptocurrency’s positive correlation with the S&P 500 after they both suffered serious losses in March 2020.
Bitcoin and S&500 correlation history | Source: Skew
“Our analysis shows that bitcoin correlation to gold remains low long-term. However, during the most recent COVID-19 induced broad market sell-off, bitcoin correlation to gold has increased significantly.”
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