A lagging indicator has turned bearish for the first time in four years, suggesting bitcoin's price may have bottomed out and that a new bull run could begin this year.
As of press time, bitcoin's 50-week moving average has dropped below the 100-week MA, confirming a bearish crossover – the first since April 2015. Long-term bearish crossovers, however, tend to occur at the end of a big bear move, with prices rallying soon after, as MAs are based on past data.
For instance, the 50-week MA responds to price action seen over the last 12 months, and the 100-week MA tracks much older data. Therefore, the bearish cross of the two is the product of a prolonged bear market – BTC dropped from $20,000 to $3,122 in the 12 months ending December 2018.
Put simply, it takes a great effort on the part of the bears to push the 50-week MA below the 100-week MA. As a result, the bear market is usually exhausted by the time the crossover is confirmed, which seems to be the case with BTC.
The leading cryptocurrency by market capitalization is currently trading at $3,749, up more than 19 percent from the lows near $3,100 seen 11 weeks ago. Further, bitcoin’s historical data shows the previous bear market ended with the 50-week MA falling below the 100-week MA in April 2015.
Weekly chart
As seen above, the 50-week MA fell below the 100-week MA in April 2015 – three months after the bear market stalled at lows near $150.
The cryptocurrency spent the following five months consolidating in a range of $200-$300 before breaking higher into a fresh bull market in October 2015. Interestingly, all this happened a year before bitcoin underwent its second mining reward halving in July 2016.
With the third reward halving due in less than 12 months, history looks to be repeating itself.
The latest bearish crossover has happened nearly three months after the sell-off from December 2017 highs ran out of steam near $3,100.
The relative strength index (RSI) has breached the falling trendline, warning the bear cross could trap sellers on the wrong side of the market. Further, the cryptocurrency is now looking north, having witnessed a high-volume bullish breakout last week.
So, there is a strong possibility that BTC will begin a new bull run later this year by violating the bearish lower highs pattern, as represented by the trendline sloping downwards from December 2017 highs.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
Bitcoin image via Shutterstock; charts by Trading View