If you have been paying attention to the Bitcoin market this week, you might have seen something exciting — a Golden Cross pattern.
In general, this is an indication of a bull market coming into existence, but this time, investors are feeling some nervousness.
Understanding the “Golden Cross”
What is a “Golden Cross?” It’s when the moving average of an asset climbs above a 200-day average over 50 days. In the current case for Bitcoin, it hit that “Golden Cross” on Sept 15th for the first time in more than a year. However, since this “Golden Cross” appeared, the price of Bitcoin has fallen by 12% to settle at $42,000.
Mike Novogratz, the CEO of Galaxy Digital, was recently interviewed on CNBC, and he believes that the “market got itself a little too long.”
Macroeconomic Factors Could Be the Cause
As we look over the past 11 months, we can see that there was another “Golden Cross” in May of 2020. It was at this time that the price of Bitcoin shot up to almost $65,000. Once this happened, of course, is that we entered into a bull market. This time, however, it seems to be different.
Why? Macroeconomic factors.
Let’s look at the past week. Assets that are risky, like Bitcoin and stocks, were really beaten down early in the week thanks to the debt default of the Evergrande Group, from China. This could have a negative effect on the broader market.
Furthermore, there is still a lot of uncertainty about what the Federal Reserve might do, and this is causing some traders to take on a lot of caution.
Bearish pressure for crypto, including Bitcoin, has also started to be noted thanks to regulatory fears. Just on Tuesday, the Securities and Exchange Commission Chairman, Gary Gensler, announced again that he believes there needs to be more crypto regulation, and he even went as far as to compare stablecoins to actual poker chips.
Novogratz elaborated on this in his CNBC interview. He said, “The China news scared people.” And ”Worry about [the] Fed coming out and, you know, talking about stablecoins and regulation. There was just a lot of nervousness in the market, and you washed a lot of shorter-term risk out.”
As we look at the past seven days and price actions, we can see that the macro factors are pushing markets in a number of directions, which differ from the price-chart patterns. This is known as “technical analysis.”
When we take a glance at the last time Bitcoin had that “Golden Cross,” we also note that most central banks were printing a ton of money in an attempt to slow the economic fallout from the COVID-19 pandemic.
Most analysts and traders still remain firm in their belief that Bitcoin will rally over the rest of the year, and they are even starting to look at Bitcoin as a type of “digital gold.”
This all sounds great, but there is also a lot of speculation out there that the Fed may soon began to slow its current $120 billion a month purchase of assets via a stimulus program known as QE, or quantitative easing. Several officials have even stated that they want to begin to stop this before 2021 is over.
We won’t know much about this until late today or tomorrow, when Jerome Powell, the Fed Chair, is believed to hold a press conference. Serious investors will surely be watching.
Based on the data we have, we see a slow pace of inflation over the past two months, and even Danske Bank is stepping is to say this, “We believe the tapering pace is more important than the timing. We continue to expect that tapering will be concluded in mid-2022.”
What does this mean for Bitcoin? It means that if the Fed begins to taper its asset purchases more quickly, the crypto could fall hard, again, before we see any overall rise in the price.
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