A crossover between two Bitcoin (BTC) moving averages that appeared before the 2020 price boom is hinting at making a return in 2021, just as the flagship cryptocurrency eyes a bullish breakout from its current $30,000–$40,000 trading range.
The indicators in focus are the MACD Line and Signal Line. MACD is an acronym for Moving Average Convergence Divergence, and a MACD Line represents the difference between the 12- and 26-period moving averages. Meanwhile, a Signal Line is a nine-period moving average.
Plotting the MACD Line and Signal Line together forms the so-called MACD Indicator, which allows traders to predict future price trends. For example, when the MACD Line (a faster-moving average) closes below the Signal Line (a slower moving average), it typically reflects a bearish trend underway. Conversely, the trend switches to bullish when the MACD Line closes above the Signal Line.
Bitcoin MACD trends since March 2020. Source: TradingView
The difference between the two moving averages makes a Histogram. If the faster-moving average moves away from the slower moving average, it indicates an MACD Divergence. Similarly, when the faster-moving average gets closer to the slower one, the crossover is called an MACD Convergence.
Pitting Bitcoin prices against MACD
In 2020, Bitcoin prices reacted accurately to the MACD crossovers. The chart below illustrates the said correlation.
The Bitcoin price-MACD weekly correlation. Source: TradingView
The recent bearish crossovers between the MACD Line and the Signal Line have led to declines. Similarly, bullish crossovers have led to massive spikes. The Histogram indicator showed the strength of both upside and downside moves based on the difference between MACD and Signal Lines.
Now, Histogram is recovering back to zero with the two lines looking at a potential MACD Convergence. The same fractal appeared last in March 2020. That followed a massive Bitcoin price rally from $3,858 to circa $65,000.
Preston Pysh, the founder of the Pylon Holding Company — an equity investment firm — expected the MACD fractal déjà vu. The analyst tweeted:
The weekly BTC MACD is looking spicy. pic.twitter.com/6TvdV13yNc
— Preston Pysh (@PrestonPysh) August 5, 2021
Additionally, in a note published in July, Katie Stockton, founder and managing partner of Fairlead Strategies, wrote that Bitcoin’s “intermediate-term momentum” was improving thanks to the MACD Histogram.
Decisive breakout anticipated
But spot markets have largely ignored long-term upside outlooks for Bitcoin as the asset struggles repeatedly to break above $40,000. Its previous attempts to extend its upside momentum beyond the said level have met extremely high selling pressure.
Meanwhile, on a brighter note, a similarly strong buying sentiment near $30,000 has capped Bitcoin prices from pursuing deeper downtrends. As a result, equally assertive bulls and bears have trapped Bitcoin in the $30,000–$40,000 price range.
Related: Bitcoin bulls overtake the $40K barrier ahead of Friday’s $625M options expiry
Pankaj Balani, CEO of Delta Exchange, expects a bullish breakout move in the Bitcoin market should it manage to hold above $40,000 for a week.
“On a conclusive breakout of the $40K level, BTC could challenge the $48K level,” the executive said.
“On the downside, traders will keenly monitor the $36K level. On breakdown below $36K, BTC can quickly move to $28K – $32K range.”
Bitcoin was trading at $40,723 at publishing time.
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