Bitcoin's Death Cross Cometh. Here's What to Expect

This death cross might not mean what you think it does

Death cross.

Sounds pretty bad, doesn’t it? Bitcoin’s about to do it—within the next week or so.

Death and bitcoin

What’s a death cross?

It’s a trading signal that appears when the 50 daily moving average drops below the 200 daily moving average on a price chart. Like so:

Some people say this death cross will send bitcoin into a bear market, but the last time bitcoin had a death cross, its price went up 700% in the 12 months that followed.

Seems odd. Let’s examine.

Lots of death crosses, not a lot of death

We’ve seen seven death crosses in bitcoin’s history. What did bitcoin’s price do immediately after each of those crosses?

Let’s count:

• Down 55%

• Up 80%

• Down 64%

• Up 30%

• Down 52%

• Down 40%

• Up 55%

As shown in this chart:

Down four times, up three times before switching direction.

Will bitcoin’s price go up after this next death cross? That would put the score at an even 4-4.

From death to birth

The death cross has an inverse called the golden cross. Some people say when the golden cross happens, bitcoin goes into a bull market.

How has bitcoin’s price performed from each death cross to each golden cross?

• Up 7% in four months

• Up 38% in three months

• Down 36% in ten months

• Up 24% in one month

• Down 21% in 13 months

• Up 17% in four months

• Up 45% in two months

Like so:

Five times you’d be up, two times you’d be down, and then you’d get a bull market. Doesn’t sound like terrible odds, though I’d hate to have to spend 13 months seeing my bitcoin worth less than when I got it.

So many death crosses, so few bear markets

While YouTube and Twitter have started to obsess over the dire consequences of this death cross, let’s not overlook a small arithmetical dilemma.

The experts say death crosses trigger bear markets. Those same experts point to three bear markets as proof.

But there are seven death crosses.

Can you have seven death crosses but only 3 bear markets?

I’m told yes, because some death crosses are fake-outs.

In bitcoin’s case, most death crosses were fake-outs.

What if this one’s a fake-out, too?

That’s certainly possible but I wouldn’t assume it will be. I wouldn’t assume anything either way.

I don’t know all the nuances of death crosses, I’m not a trader, I’m just taking what people say and pointing out the realistic outcomes. Sometimes, bitcoin’s price goes up. Sometimes, its price goes down.

Are you still worried about the death cross?

If you are, look at the S&P 500. It saw five death crosses during its bull run from 2009 to 2020, as shown in this chart:

That was the longest bull market in history—and it was littered with death crosses!

Confirmation, not prediction

Death crosses confirm price went very fast over the short term compared to the long term. What goes up must come down.

While that’s reason enough to expect a regression to the mean, buying the death cross has historically turned out in your favor.

When bitcoin’s price dropped, it later came back up and then went higher.

When bitcoin’s price went up, it never came back.

Alternatively, you can wait for the golden cross to confirm the bull market. Five out of seven times, you’d end up buying higher.

This is a hard market and risky at any price, high or low. If you can force yourself to buy now, when history and game theory say you should, you won’t have to chase the price once the next parabola begins. You’ll have your bitcoin.

At that point, while everybody else is rushing back in, you can sit back, relax, and enjoy the ride.

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Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.

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• @mkhelfman

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