Bitcoin Crosses Above Its 200 day Moving Average. What’s Next?
On August 9, 2021, the Bitcoin exchange rate versus the U.S. dollar closed above its 200 day moving average. This closing level was the first time that the cryptocurrency closed above this critical technical level in four months. Historically, there have been some significant moves in the price of Bitcoin following a close above the 200 day moving average. In the future, the outlook may be positive and could continue to see further upsides following this accomplishment.
What is the 200 day Moving Average?
Bitcoin closed above its 200 day moving average on August 9, 2021. The 200 day moving average is an average that calculated the last 200 days. This moving average is a simple moving average. It is calculated by taking the sum of all the days over the past 200 periods. On the 201st day, the first day in the calculation is dropped. There are several alternative ways to calculate a moving average. Some traders prefer the exponential moving average. This average calculation provides more weight to the latter than the earlier days, allowing the moving average to be more up-to-date.
How Do You Use the 200 day Moving Average?
There are several ways that traders can use the 200 day moving average. Many use the 200 day moving average to determine critical support and resistance levels. Resistance is a level where prices are capped and cannot move higher. Support is a level where prices cannot move lower. Many crypto traders also use the 200 day moving average as an indicator to determine if a trend is in place. For example, when the 50-day moving average crosses above the 200 day moving average (known as the Golden Cross), a long-term uptrend is considered in place. When the 50 day moving average crosses below the 200 day moving average (the death cross), a long-term downtrend is considered in place.
Traders often look to see if the price of an asset closes above or below the critical resistance or support created by the 200 day moving average. Generally, when the price of an asset closes above the 200 day moving average, it has cleared critical resistance, which becomes support, and the uptrend may be likely to continue. When the cost of an asset closes below a 200 day moving average, it becomes price resistance, and the downtrend in the asset’s price is in place.
Bitcoin Closes Above 200 day Moving Average
The last time bitcoin closed above the 200 day moving average was in April of 2021. The returns that bitcoin experienced following a close above the 200 day moving average was 20%. The prior cross above the 200 day moving average occurred in September of 2020. The returns that bitcoin experienced following a close above the 200 day moving average following the September cross was 600%. The price of Bitcoin in September of 2020 was close to 10,000, and the subsequent high in April of 2020 was more than 60,000. According to analyst Thomas Lee in an interview on CNBC on August 9th, the average return of Bitcoin, six months following a cross above the 200 day moving average, is 180%. This return is significant, and an analyst of Thomas Lee’s stature could see Bitcoin prices moving, given the close above this key technical level.
AMC Announces it Will Accept Bitcoin by Year-End
Another piece of news that was also released was that movie theatre chain AMC announced on the same day that the company would begin to accept Bitcoin as a payment for its movies. AMC is not the only company that accepts Bitcoin. The company announced during its earnings call that it would start to take the digital currency by the end of 2021.
The Bottom Line
The upshot is that Bitcoin has now re-crossed above a critical technical level. The 200 day moving average is the simple average of the last 200 days and represents an area of resistance that likely has now become support. The 200 day moving average is often used as an indicator that shows a trend is in place. The Golden and Death cross are two examples of moving average cross-over strategies that combine the 200 day moving average with the 50 day moving average.
Historically, when Bitcoin closes above its 200 day moving average, the average return on the cryptocurrency is 180%, according to analyst Thomas Lee, who very bullish on the price of Bitcoin. He believes there could be substantial returns moving forward for the cryptocurrency. On the same day that Bitcoin crossed above its 200 day moving average, AMC, the large movie chain, announced that by the end of 2021, the company would begin to accept Bitcoin as payment in its movie theaters. Given the recent cross above the 200 day moving average, how will Bitcoin prices move in the future? Only time will tell.