The head of research at CoinShares, James Butterfill, dismissed the notorious “Bitcoin death cross” indicator as “total nonsense,” referring to historical data that indicates these occurrences often lead to positive returns instead of extended downturns.
Butterfill made these remarks on April 8, the day following Bitcoin’s (BTC) formation of a death cross pattern. On April 7, BTC’s 50-day simple moving average (SMA) fell to $86,485.72, dipping below the 200-day SMA of $86,839.64.
In analyzing 11 previous instances of death crosses, Butterfill found that BTC typically shows slight losses within a month post-event. However, the median and average returns over the subsequent three and six months are positive.
A death cross is a widely recognized technical indicator that signals potential downward pressure when the 50-day simple moving average drops below the 200-day SMA.
Historical data indicates gains instead of declines
The returns of Bitcoin following past death crosses display considerable variation. The analysis includes 11 historical occurrences dating back to 2011, tracking BTC price changes one month, three months, six months, and a year after each event.
One month post-death cross, Bitcoin recorded a median return of -1.6%, with an average return of -3.2%. These figures improved at the three-month mark, achieving a median of 3.7% and a mean of 13.6%.
For the six-month and 12-month returns, results were more favorable, with average returns of 17.0% and 52.3%, respectively, although the median return after a year remained negative at -17.2%.
This divergence in performance emphasizes the indicator’s unreliable nature as a forecasting tool. For instance, the March 2020 death cross preceded a staggering 450% price increase a year later.
Likewise, the events of 2011 and 2015 resulted in triple-digit gains in the following year, contrary to the bearish implications of the signal. In contrast, death crosses in 2021 and 2018 led to double-digit losses after a year.
Butterfill pointed to these inconsistent outcomes to assert that the pattern lacks empirical validity. He remarked:
“For anyone who believes the Bitcoin death cross has any significance – empirically it’s total nonsense, and in fact, it often represents a beneficial buying opportunity.”