CoinShares head of research James Butterfill has dismissed the significance of the “Bitcoin death cross” indicator, labeling it as “total nonsense.” According to historical data analyzed by Butterfill, these events often lead to positive returns rather than prolonged declines.
The statement was made on April 8, following the occurrence of a death cross pattern in Bitcoin (BTC) on April 7. The 50-day simple moving average (SMA) of BTC dropped to $86,485.72, slipping below the 200-day SMA at $86,839.64.
By examining 11 past instances of death crosses, Butterfill found that Bitcoin typically experiences slight losses within one month after the event. However, the median and mean values for the following three and six months show positive returns.
A death cross is a technical signal that indicates potential downward momentum when the 50-day SMA falls below the 200-day SMA.
Analyzing historical data, it is evident that Bitcoin’s performance following past death cross events varies significantly. The dataset includes data from 11 historical instances dating back to 2011 and tracks BTC price changes one month, three months, six months, and 12 months after each occurrence of the event.
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, the figures improved to a median of 3.7% and a mean of 13.6%.
Six-month and 12-month returns showed even more positive results, with average returns of 17.0% and 52.3%, respectively. Although the median one-year return remained negative at -17.2%.
The inconsistency of the indicator as a predictive tool is evident in the divergent performance outcomes. For instance, the March 2020 death cross was followed by a 450% price increase one year later. Similarly, the 2011 and 2015 events led to triple-digit returns over the following year, contradicting the bearish interpretation of the signal. On the other hand, the 2021 and 2018 death crosses resulted in double-digit losses after twelve months.
Butterfill emphasized the mixed results to argue against the empirical reliability of the pattern, 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.”
This analysis sheds light on the unpredictable nature of the Bitcoin death cross indicator and highlights the importance of considering broader market trends and factors when making investment decisions in the cryptocurrency space.