Bitcoin Is About to Flash the Dreaded "Death Cross" Sell Signal, Suggesting an Extended Correction

Bitcoin is about to flash the dreaded "death cross," a technical sell signal that suggests the cryptocurrency could see a stretch of losses ahead.

Bitcoin (BTC) price is threatening to flash a technical sell signal known as a “death cross,’ which occurs when the 50-day moving average crosses below the 200-day moving average.

The technical sell signal is capable of generating significant attention among traders, especially during periods of heightened market volatility. The moving average crossover strategy can signal a reversal in a prior trend, and the last time bitcoin flashed a death cross signal was in August, when the cryptocurrency went on to decline by as much as 16%, before quickly recovering to hit new records in November.

The signal is also subject to head fakes, as was seen during the August death cross.

“While every major decline starts with a ‘death cross' not every ‘death cross' leads to a major decline,” Ari Wald, head of technical analysis at Oppenheimer & Co., previously told BI.

So it remains to be seen if a coming death cross in bitcoin proves to be a reliable sell indicator. However, Katie Stockton of Fairlead Strategies thinks investors should prepare for further downside, noting that the intermediate-term momentum signals now lean bearish.

“We would use a short-term rebound to reduce exposure since bitcoin now has a decisive long-term overbought downturn to suggest a corrective phase is likely to become prolonged,” Stockton told clients in a note on Tuesday.

Stockton expects bitcoin to test support at $73,800, representing potential downside of 13% from current levels.