Spurred by the recent flood of spot Bitcoin ETF applications from Blackrock and Fidelity among others, Bitcoin vaulted impressively up to the $30,000 area where its momentum has stalled in recent sessions. While many analysts and traders routinely acknowledge the significance of the $30,000 level as a key resistance area, Bitcoin’s move back above its 20-month simple moving average (20-month SMA) may deserve far more attention than it’s getting. With Bitcoin poised for a potential major buy signal as soon as July 1st, let’s take a closer look at this underappreciated signal.
What’s striking in this chart is that 20-month SMA nearly perfectly divides bull phases from bear phases throughout most of Bitcoin’s history from late 2011 to now. For example, exiting once Bitcoin closes below its 20-month SMA sidesteps much of the 2014-2015 bear market, the worst leg down of the 2018-2019 bear market, and so far virtually all of the current 2022-2023 bear market. The early pandemic drop in March of 2020 provides the only exception, with the simple logic getting briefly whipsawed before re-entering at the start of the next month.
The Simple Line Separating Bull And Bear Phases
Bitcoin’s 20-month SMA currently sits at $29,910 according to the Bitcoin / U.S. Dollar All Time History Index, slightly below Bitcoin’s current price of just above $30,000. This puts the number one cryptocurrency by market cap barely above its 20-month SMA for the first time since March 2022. What’s the potential significance? If Bitcoin can end the month of June with a monthly candle close above the 20-month SMA, this will be only the fifth time that this has occurred in all of Bitcoin’s history, and a signal which has often seen higher prices follow.
Bitcoin Monthly Chart with 20-Month SMA | BTCUSD on TradingView.com
For a clearer picture of the significance of the 20-month SMA, let’s look at all of Bitcoin’s monthly closes above the 20-month SMA and below the 20-month SMA. In order to do this, we’ll create a hypothetical trading system, strictly for analytical purposes, “buying” when Bitcoin closes above its 20-month SMA and “selling” when Bitcoin closes back below its 20-month SMA. Note that “LE” indicates a buy signal while “LX” indicates a sell signal. The blue highlight shows the periods when the system’s logic sold Bitcoin following a long exit signal and was out of the market.
Bitcoin Monthly Chart with 20-Month SMA | BTCUSD on TradingView.com
Bitcoin’s 20-Month SMA Stats Look Compellingly Bullish
Taking our research a step further, let’s quantify the signals, once again hypothetically “buying” when Bitcoin closes above its 20-month SMA and “selling” when Bitcoin closes back below its 20-month SMA. From late 2011 to the present, there have been four completed signals with a profitability of 75%, meaning three of the four signals produced a hypothetical gain, and one of the signals produced a loss. Over these four signals, Bitcoin delivered an impressive +2499% hypothetical average trade versus a single worst trade result of -24.8%. While clearly occurrences of these infrequent signals are low (only four to date, and too few to be statistically significant) and the past does not predict the future, we’ll nevertheless be watching closely to see if Bitcoin can end June with a monthly close above its 20-month SMA. At the moment, sitting just above the key $30,000 level, Bitcoin looks poised for a potential major buy signal in July.DB the Quant is the author of the newsletter on Substack. Follow on Twitter for evidence-based crypto market research and analysis. Important Note: This content is strictly educational in nature and should not be considered investment advice. Featured images created with Tableau. Charts from TradingView.com.
