Solana’s first death cross looks ready this week as it raises fears for more bearish action till February.
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The real threat of selloff
Remarkably, the red wave, often regarded as the 50-day Exponential Moving Average (EMA) will finally close below the blue wave (200-day EMA). This indicates a bearish cross and it is often regarded as s “death cross”. When this happens, digital currency get ready to sell.
The threat became very obvious as SOL is seemingly closing at a loss of nearly 50% in January. The token dropped from $180 to about $91 but the final day of the month saw a decline of approximately 2.5%. In the meantime, the fuel behind the price crash of SOl is very much full.
Due to the fall crypto assets have experienced, there has been an attempt by traders to assess the rate of increase of the Federal Reserve benchmark rate. In a bid to tame rising inflation and tighter US job market from levels near zero.
Half of the SOl market valuation was wiped from $55.19 billion to $28.79 billion in January. This happened right after it closed with a whooping profit of 11,144% in 2021. This brought about the expectation of some financial experts that there will be winter in the crypto market (bears cycle). The previous one that occurred in 2018 saw more than han 80% fall in the market capitalization of digital assets.
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Currently, a bullish run from SOL can only be possible if it stays above the support region at $83. A break below this region would cause a decline to about $65, another support level. If it breaks this support again, there will be another bearish run to a significant support level. A bounce-back could be expected from $65 if the buyers are strong enough for a pullback. Both support levels were factors that skyrocketed SOL’s price last year to about $260.
A partner from Blockasset.co, Philip Gunwhy is still very much bullish on Solana in the long term. He referred to SOL’s growth in Non-Fungible Token (NFT) and Decentralized Finance (Defi) which has exceptionally boosted the demand for SOL.
However, he made mention the fact that the short-term rebound of SOL is dependent on crypto ecosystem performance at large. He concluded that the primary focus for SOL is to hold the support region at $65-$85 for the week. If that can be maintained, the main focus would be its restest back to its all-time high at $260 or even go further to form a new all-time high.
From the time e Solana token was launched, up to date, there hasn’t been a 50-200 day EMA bearish cross on Solana’s chart. So there are no datonto ananalyzeraders’ reactions to its death cross. But SOL’s traders are not that bothered considering that in recent years, they have been trading Bitcoin (BTC) and are now very familiar with the outcome of the death cross.
Take for instance, in June 2021, BTC dropped to a price of about $29,000 after experiencing a death cross. But after a month, BTC experienced a strong rebound off the support region and its price was sent in November to an all-time high of $69,000.
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Comparably, there have been cases of death cross particularly on S&P 500 (SPX) that led to a false bearish signal. So a death cross is not a perfect indicator to determine a bearish run. For example, the SXP had a bearish cross in December 2018, and another one in March 2020. Both led to the formation of a bottom, and there was a strong rebound in price.
Apparently, there is a possibility that this death cross that is forming on SOL’s charge could lead to a bottom and a very strong bullish reversal. By doing that, SOL’s price might move towards the 200-day EMA after moving to break the previous resistance/support level. On the other hand, this bearish cross might lead to another downtrend rally.
There is another bullish signal coming from the relative strength index (RSI) as it is currently trading in the oversold territory.
In conclusion, a false bearish signal might occur if buyers hold their support region thereby taking the RSI indicator above the oversold territory.