Bitcoin’s ‘MACD’ Indicator Worries Long-Term Bullish Bias

Bitcoin’s long-term bullish outlook is at risk. There’s a danger of their being invalidated on technical charts. The cryptocurrency reels are under selling pressure due to negative macro grounds. And this could be the reason.

The cryptocurrency’s monthly moving average convergence divergence (MACD) histogram has crossed below zero. It is signaling a sell signal on the longer-term price chart. Thus, it indicates a bullish-to-bearish trend change.

To understand it better, let’s learn about some basic terms you need to know about.

What is the MACD indicator?

Moving average convergence divergence (MACD) is a trend-following rate indicator. It shows the connection between two moving averages of a security’s merit. One can estimate the MACD by deducting the 26-period exponential moving average (EMA) from the 12-period EMA.

The MACD line is the result of the calculation. The “signal line” is a nine-day EMA of the MACD, which you can put on top of the MACD line. It can act as a trigger for buy and sell signals. When the MACD crosses above its signal line, traders can buy the asset. Moreover, when the MACD crosses below the signal line, they can sell (or short) the security. You can interpret moving average convergence divergence (MACD) indications in a variety of ways. However, crossovers, divergences, and quick rises/falls are the most popular.

Important notes

  • MACD is determined by deducting the 26-period EMA from the 12-period EMA.

  • When the MACD goes above (buy) or below (sell) the signal line, it forges technical signals.

  • Crossover speed is often examined to decide whether a market is overbought or oversold.

  • The MACD indicator implies to investors if the price is boosting or cutting in a bullish or bearish trend.

What do Bullish and Bearish mean?

When there is the bullish sentiment on the stock market, prices are likely to climb. It is a term we use to define the mindset of an investor. Bullish denotes a positive view, whereas bearish denotes a rather pessimistic outlook.

Long-term bullish bias risked by Bitcoin’s ‘MACD’ as rate hike fears prevail

According to Katie Stockton, founder, and managing partner of Fairlead Strategies, there is an unconfirmed monthly MACD sell signal. If confirmed accompanying a breakdown [of support around $37,400], it would support a long-term bearish bias.

At the time of publication, Bitcoin was trading beneath $37,400. It had broken through the support earlier this month. Moreover, the MACD must remain negative through Monday’s UTC (23:59) close to validate the sell signal.

In July 2018, the monthly MACD went into bearish territory and it was the very first time. Since then the cryptocurrency has dropped more than half to $3,500. Additionally, it has extended its fall from record highs above $20,000.

Thus, technical studies based on backward-looking moving averages, such as MACD, are less trustworthy than fundamental or macro elements. However, macro appears to have aligned in favor of the bears right now.

Global tightening?

Bitcoin is on its way to losing for the third month in a row. And it owes to rising concerns about global monetary policy tightening.

At press time, the top cryptocurrency by market capitalization was trading near $36,960. It represents a 20% decrease in January. Moreover, according to CoinDesk data, prices fell 7% and 19% in November and December, respectively.

Macro concerns are driving the correction, such as predicted rate hikes and liquidity tightening by the Federal Reserve in the United States. In “Did You Say Crypto Winter?”, a LinkedIn article, Noelle Acheson, head of market analysis at CoinDesk sister business Genesis Global Trading, said that the 60-day correlation between BTC and the S&P 500 was nearly 0 at the end of 2017. Currently, it is over 65 percent.

The Federal Reserve of the United States paved the stage for speedier removal of crisis-era stimulus on Wednesday. Since then, some Wall Street institutions, including Goldman Sachs, have forecasted rate hikes of five-quarter percentage points this year. Also, we can expect a rise of 25 basis points in March, according to the market. President Raphael Bostic of the Atlanta Fed told the Financial Times on Friday that the central bank could surprise with a 50 basis point rise in March.

Other central banks may follow the Fed’s approach. This can complicate conditions for bitcoin and other risk assets, according to speculation.

Global price pressures are on the hike. In this situation, central banks may feel compelled to give tit-for-tat rate hikes. This way, they can defend their currencies against the dollar. A strong currency lowers import costs, which helps to keep inflation under control.