Bitcoin's Death Cross: Historically A Buying Opportunity, Says CoinShares
1min read CoinShares head of research James Butterfill has dismissed the significance of the "Bitcoin death cross" indicator, labeling it as "total nonsense." This assertion comes in the wake of Bitcoin (BTC) experiencing a death cross pattern on April 7, where the 50-day simple moving average (SMA) fell below the 200-day SMA.
Butterfill's analysis, presented in an April 8 post, delves into the historical performance of Bitcoin following past death cross events. He examined 11 such occurrences, revealing that while Bitcoin typically experiences slight losses within the first month, the median and mean values for the subsequent three and six months are positive.
Ask Aime: "Has Bitcoin's recent death cross been historically accurate?"
A death cross is a technical signal that suggests potential downward momentum when the 50-day SMA crosses below the 200-day SMA. However, historical data indicates that Bitcoin's returns following these events are varied and often positive in the long term.
For instance, one month after a death cross, Bitcoin's median return was -1.6%, with an average of -3.2%. However, at the three-month mark, these figures improved to a median of 3.7% and a mean of 13.6%. Six-month and 12-month returns were even more favorable, with average returns of 17.0% and 52.3%, respectively, although the median one-year return remained negative at -17.2%.
Butterfill highlighted the inconsistency of the death cross as a predictive tool, noting that past events have led to both significant gains and losses. For example, the March 2020 death cross preceded a 450% price increase one year later, while the 2011 and 2015 events eventually led to triple-digit returns over the following year. Conversely, the 2021 and 2018 death crosses preceded double-digit losses after twelve months.
Butterfill's analysis underscores the unreliable nature of the death cross indicator, suggesting that it often presents a good buying opportunity rather than a signal of impending doom. He emphasized that the pattern lacks empirical reliability, stating, "For those of you that think the Bitcoin death cross means anything – empirically it’s total nonsense, and in fact often a good buying opportunity."
