Bitcoin Trading Below Death Cross Not a Reason to Worry

  June 28, 2021

The largest cryptocurrency survived another volatile week, where it slumped below $30,000 before making a comeback at almost $35K. With Bitcoin entering a death cross, investors are evaluating their options and the implications of the ominous-sounding pattern. While many are worried about an impending crash, a strategist at Piper Sandler thinks there’s no need for panic.

Bitcoin Price Outlook After Death Cross 

For those not in the know, a death cross pattern occurs when an asset’s 50-day moving average (MA) slides below its 200-day MA. Bitcoin formed a death cross on June 19 following which the currency’s price has fluctuated heavily. Piper Sandler’s chief technical strategist Craig Johnson has been watching this trend to analyze how Bitcoin has fared after the pattern and its general price outlook.

Johnson studied a total of 7 previous occurrences of death cross in Bitcoin’s price action since 2010 to understand its impact. He noted, “Of the 7 other occurrences found during this timeframe, the average 30-day forward return after a death cross was +11.2%.”

According to Johnson, the death cross is a lagging indicator for Bitcoin projections. Therefore, his team decided to optimize the short and long-term averages to “identify the best 30-day forward returns for a death cross.”

Piper Sandler’s Recommended Entry Points for Bitcoin

Johnson has observed that entering a Bitcoin short position is ideal when the 8-day MA falls below the 240-day MA because it produced the highest returns over the last 10 years. In addition to this, the optimizations in death cross led to an average 30-day return of +14.7%. In fact, seven of the nine trades that were produced in this timeframe led to positive returns.

Based on its analysis, Piper Sandler suggested that for Bitcoin long positions, the ideal time to enter the market is when the “74-day MA crossed above the 123-day MA”, which generated the highest returns over the last 10 years. The investment bank also added that the average 30-day return for the golden cross was +71% following the buy signal. And as many as 8 trades out of 12 in this timeline created positive returns.

Compared to the 30-day max returns from the first model with the optimized death cross, which stood at 138%, the second model’s maximum return was a whopping 892%, with a max-drawdown of 20.9%. 

Piper Sandler concluded the analysis by observing that at present the 74-day moving average stands at 6.9%, below the 123-day MA.


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