This Signal in Bitcoin's Chart Has Never Been Wrong

All investors want a crystal ball, and while they're unlikely to find one, sometimes there's a substitute. Bitcoin's (CRYPTO: BTC) chart features a pattern that has preceded every major bull market in the digital coin's history.

But there's a wrinkle that separates informed investors from chart watchers, so let's unpack this signal so that you know how to use it (and how not to).

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The track record looks good here

The 200-day simple moving average (SMA) of an asset is an average of its closing prices over the prior 200 days, and it's one of the most watched long-term trend indicators in financial markets. With Bitcoin, when its shorter-term 50-day SMA crosses above the 200-day SMA, in a signal that's known as a "golden cross," the rallies that follow have historically been enormous.

There's no guarantee that what happened in the past will happen again, but Bitcoin bulls like their odds.

The crossover in February 2023 kicked off a 43% rally; October 2023's signal led to a 148% surge. October 2024's golden cross preceded Bitcoin climbing from roughly $65,000 past $110,000 to new all-time highs, making for a gain of about 72%.

But don't get too excited. Right now, Bitcoin is not on the verge of experiencing any golden cross, and it usually isn't smart to make long-term investing decisions based on such technical indicators, as sometimes investors (mistakenly) use them as a substitute for an investment thesis.

With that said, when and why might Bitcoin next experience a favorable crossover indicating a potential surge?

The moving average is just an echo

Each of Bitcoin's golden crosses has happened in proximity to one of its halvings, the protocol-level events that cut the issuance of new coins from mining in half every four years. The most recent halving was in April 2024, and the next will be in 2028.

More importantly, though, the 200-day SMA isn't itself a fundamental measure of anything, nor should it be considered as a trigger for you to commit extra capital to your Bitcoin investment. It's a mathematical by-product that's calculated using seven months of the asset's price action.

When the crypto rallies because new supply gets slashed by a halving, the moving average trends upward because investors tend to load up on coins in the periods immediately before and afterward in anticipation of tighter supply driving higher prices. The golden cross is just a confirmation of the forces that were already in motion.

If the historical playbook holds through the 2028 halving, this interim period is when Bitcoin tends to build the base from which its next major advance launches. That doesn't guarantee a smooth ride for holders at any point, but it does suggest that now is a decent time to be accumulating it, before prices are liable to spike much higher. And if you do see a golden cross on Bitcoin's chart someday, don't get scared out of the market; just be aware that your access to cheaper prices might not last for much longer.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.