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The ominous-sounding ‘death cross’ is a bearish indicator which shows up when the 50-day moving average (MA) drops below the 200-day MA, CoinDesk wrote. The death cross looks like it’s about to become fact this week due to rising concerns of the US Fed’s faster liquidity withdrawal, which paints a bearish picture for Bitcoin (BTC/USD) and asset prices.
Goldman predicts major borrowing cost increase by end of year
Goldman Sachs predicts that the Federal Reserve will hike up borrowing costs at least four times by the end of 2022, backtracking on an earlier prediction of three rate hikes. They also expect the central bank to reduce its balance sheet from six months ago.
Labor market report strengthens rate hike case
The US labor market report, released on Friday, showed that unemployment had dropped to 3.9%. This strengthened the case for the central bank to increase rates along with the end of asset purchases in March.
Fears grip Bitcoin market
Fears of a hawkish central bank gripped the market at the end of 2021’s last quarter after the Fed shifted its focus from maximum employment to inflation control. In December, the bank announced at least three rate increases by the end of this year and completion of the asset purchase program by March.
Bitcoin has lost 40% from its all-time high
Bitcoin reached a new all-time high around $69,000 on November 10, but it has lost almost 40% since. Over the last seven days, it dropped by more than 12%, registering its biggest weekly drop since the beginning of December. The seemingly inevitable death cross bolsters bearish attitudes together with the souring macroeconomic outlook.
Previous death crosses coincided with selloffs or macro downtrend
Past records of the technical indicator as a bear market predictor are mixed. Kraken research shows that Bitcoin’s death crosses in 2014 and 2018 coincided with either a consistent macro downtrend confirming bearish sentiment or a selloff in subsequent days.
On the other hand, death crosses in 2021, 2020, and 2019 were false signals or bear traps marking significant price bottoms. The death cross last year gave way to consolidation, which led to a fresh bull run.