Bitcoin price sits just above its 200-week moving average, a level Kraken says has historically produced returns above 100%.
Bitcoin‘s latest move has put a long-term market floor back under scrutiny, with traders weighing whether another brief break below a four-year trend line is a warning sign or a buying setup.
In a June 18 commentary for CoinDesk, Thomas Perfumo, chief economist at crypto exchange Kraken, said Bitcoin’s brief moves below its 200-week simple moving average have historically offered strong returns for buyers.
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The 200-week simple moving average tracks Bitcoin’s average price over roughly four years. Traders use it to filter out short-term price noise and judge whether Bitcoin is trading above or below its longer-term trend.
As of press time, Bitcoin trades around $63,900, compared with a 200-week average of $62,358.
Kraken Says Dips Have Been Rare
According to Perfumo, instances of closing under the 200-week moving average occurred on around 10% of days since mid-2017, implying that rarity is the foundation of Kraken’s bull case.
Based on Perfumo’s explanation, those who purchased Bitcoin at this point would go on to generate “median returns north of 113%” over the next year and “313% over two years.”
Median returns are different from simple average returns as they show the middle result across past cases, which makes the figure less dependent on a few extreme rallies.
Kraken also said the holding pain after buying below the level has historically been limited. Perfumo said the median time to break even was “just two days,” while the median maximum drawdown over the next year was only 9%.
But the caveat is that the signal comes from past cycles, not a guarantee of another rally. Perfumo warned that “past performance is no guarantee of future results,” while saying Bitcoin has historically tended to offer “immense value” around those levels.
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