Recently, CoinShares head of research James Butterfill dismissed the significance of the “Bitcoin death cross” indicator, calling it “total nonsense.” According to historical data analysis conducted by Butterfill, Bitcoin has typically seen positive returns following a death cross pattern rather than prolonged declines. This contradicts the common belief that the death cross indicates potential downward momentum in the market.
The death cross pattern occurs when Bitcoin’s 50-day simple moving average falls below the 200-day simple moving average. On April 7, Bitcoin experienced this pattern when the 50-day SMA declined to $86,485.72, falling below the 200-day SMA at $86,839.64. Despite this occurrence, Butterfill’s analysis of 11 past death cross events revealed that Bitcoin usually records slight losses in the month following the event, but median and mean values for the subsequent three to six months are positive.
Historical data from 11 previous death cross instances dating back to 2011 shows various outcomes for Bitcoin’s price movements following the event. While one-month returns were negative on average, the three-month and six-month returns were positive, with average returns of 13.6% and 17.0%, respectively. However, the one-year return remained negative on a median basis at -17.2%, indicating the inconsistency of the death cross as a predictive tool.
The unpredictability of the death cross as a reliable indicator is further emphasized by the varying performance of Bitcoin following past instances. In some cases, such as the March 2020 death cross, Bitcoin saw a significant price increase of 450% one year later. Conversely, the 2011 and 2015 events resulted in triple-digit returns, contradicting the bearish interpretation of the signal. However, the 2021 and 2018 death crosses led to double-digit losses after twelve months.
Butterfill highlighted these mixed results to argue against the empirical reliability of the death cross pattern. He suggested that the pattern is often a good buying opportunity rather than a signal of impending market decline. This analysis challenges the common narrative surrounding the death cross and encourages a more nuanced understanding of Bitcoin price movements based on historical data and empirical evidence.
Overall, Butterfill’s assessment of the Bitcoin death cross indicator sheds light on the complexity of market signals and the importance of considering historical data in predicting future price movements. While the death cross may carry some weight as a technical indicator, its inconsistent performance in the past suggests the need for caution when interpreting its implications for Bitcoin’s price trajectory.
