Bitcoin Death Cross Signals Potential Downside as S&P 500 Approaches Bearish Pattern

Bitcoin and other cryptocurrencies have been experiencing a strong downtrend this year, with the total market capitalization of crypto assets shedding over $1 trillion. Bitcoin itself has dropped significantly from its year-to-date high of $109,300 to $82,000, while altcoins like Ethereum, Ripple (XRP), and Cardano have seen even deeper declines. This fall in prices is largely attributed to growing fear in the financial markets, with the crypto fear and greed index plunging to the extreme fear zone of 19, and the CNN Money Fear & Greed Index also dipping to 20.

One of the main factors contributing to the crypto sell-off is the fear of a potential recession in the U.S., exacerbated by Donald Trump’s tariffs. Despite some positive developments in the crypto industry, such as the Securities and Exchange Commission (SEC) concluding lawsuits involving companies like Uniswap, Kraken, and Coinbase, the broader market sentiment remains cautious. Additionally, Trump has signed an executive order aimed at creating a strategic Bitcoin reserve and building a stockpile of digital coins, while institutional investors like Citadel, BlackRock, Rumble, and Trump Media have started acquiring Bitcoin.

However, the outlook for Bitcoin and other cryptocurrencies could worsen if the S&P 500 index forms a death cross pattern. This technical formation occurs when the 50-day moving average (MA) crosses below the 200-day MA, signaling the potential for a prolonged bear market. The spread between these two averages for the S&P 500 has been narrowing, with the 50-day moving average at $5,900 and the 200-day moving average at $5,857. A crossover could potentially lead to more downside, as this pattern historically resulted in a 23% drop in the index the last time it formed a death cross in 2022. The S&P 500 is often considered a reliable indicator for the cryptocurrency market, as both are viewed as risky assets that tend to move in correlation.

Bitcoin has already formed a death cross, with its 50-day moving average crossing below the 200-day moving average. This cross followed Bitcoin’s drop below critical support levels, including the $89,000 support, which served as the neckline for a double-top pattern at $108,500. Double-top patterns are typically seen as one of the most bearish technical formations in chart analysis. Given these technical indicators, Bitcoin could face further declines, potentially dropping to $73,722 or $68,960 before finding a potential rebound. These levels correspond to key points from March last year and November 2021, which could act as important support zones.

However, a potential catalyst for reversing this trend could come from the Federal Reserve’s upcoming interest rate decision next week. If the Fed adopts a more dovish stance, as suggested by trends in the U.S. dollar index and the bond market, it could lead to a rebound in both the S&P 500 and the crypto markets. The decision could influence the overall sentiment and provide some relief for the struggling market.