Bitcoin price is currently attempting to hold above $25,000 per coin, securing a higher low over the June 2023 local bottom at $24,775. But regardless if it does, today’s downside guarantees that a death cross on the daily will trigger – potentially with tonight’s daily close.
Much like it sounds, the “death cross” is not a positive sign for the cryptocurrency market. Here is the actual data behind the ominous sounding bearish crossover signal.
Betting On The Bearish Bitcoin Death Cross
BTCUSD is potentially only hours away from triggering a death cross on the daily chart. This marks the first bearish crossover of 2023 of the 50-day and 200-day moving averages, which formed the opposite golden cross back in February of this year.
The importance of the signal cannot be understated. Moving average crossover signals are among the most effective trading systems available, and are part of a broader category of trend-following tools. The last time the signal appeared, Bitcoin fell by 65% more. A golden cross would have closed out that sell signal, only giving back 15% of the downside returns.
But what about historically? Using TradingView, the performance of trading BTCUSD using nothing more than golden crosses to buy and death crosses to sell, resulted in only 41% winning trades. That means more than half of the trades were losing trades. But this is where trend-following tools prove their effectiveness, however. Even though trades lost most of the time, the winning trades resulted in an average of 585% ROI.
Tabulating The Results Of Trend-Following Trading Systems
This is because trend-following systems, while they can lag and be susceptive to market chop giving false signals, they tend to capture the majority of a legitimate trend. Even if there are more losing trades than winners, the few winners win so much that it far exceeds the small, repeated losses. Losses were indeed small, with losing signals only resulting in a 17% max drawdown.
Going by the data alone, there is a higher probability that a new downtrend could form. If Bitcoin can golden cross in the days, even weeks or months following this death cross, we can chalk the signal up to natural whipsaw as BTCUSD establishes a reliable bottom. Otherwise, this could be an early warning that the bearish trend is about to pick up steam.
Finally, other institution-related Bitcoin charts could be indicating that the death cross is a fake. In issue #20 of CoinChartist VIP: Flirting with Death, another chart compares the BTCUSD spot death cross with the proximity of the signal in BTC CME Futures and Grayscale Bitcoin Trust (GBTC). In the exclusive chart, the 50-day and 200-day moving averages aren’t anywhere close to the death cross, with one of the two charts showing much more bullish price action.