Matt Hougan, the chief investment officer at asset manager Bitwise, said his base case is a significant crypto rally after current macro uncertainty begins to dissipate in October and November.
September tends to have a seasonal effect across financial markets, crypto included. This year, key factors such as the U.S. presidential election, the timing and scale of Federal Reserve rate cuts, and mixed Bitcoin BTC
+3.38%
and Ethereum exchange-traded fund flows are influencing market psychology, Hougan wrote in a Tuesday note to clients.
The U.S. presidential election is currently a toss-up in Hougan’s view, with the decentralized predictions platform Polymarket showing a 53% to 46% lead for Donald Trump over Kamala Harris compared to more mixed national polls ahead of Tuesday night's first debate between the candidates.
“I suspect we’ll see the market struggle to find its footing until we have greater clarity over future leadership and policy,” Hougan noted.
While there is broad consensus on upcoming rate cuts, the probability of a 50 basis point cut in September is down. Still, the chances of more than 125 basis point cuts by December are up as the market heads into Wednesday’s CPI reading and the key Fed meeting next week.
Then there are the Bitcoin and Ethereum ETFs, including Bitwise’s own funds, painting a mixed picture. Flows have softened in recent months, and the spot Bitcoin ETFs just witnessed their longest net outflow run since launching in January. However, investment advisors are adopting the spot Bitcoin ETFs “faster” than any other exchange-traded fund in history, according to Hougan, countering research specialist Jim Bianco’s claim that their take-up has been slow.
“Markets hate uncertainty, and there is a lot of uncertainty in the market right now,” Hougan said.
Wake me up when September ends
September is the worst month for bitcoin price performance by a long way, falling by an average of 4.5% during its trading history, with August being the only other negative month on average.
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Bitcoin average monthly return. Image: Bitwise.
In fact, bitcoin has traded down in nine of the 13 Septembers on record. September 2011 was its worst, with prices falling over 40%. The cryptocurrency is currently down around 3% this month, according to The Block’s Bitcoin Price Page.
The remainder of this month is also shaping up to be volatile, according to analysts at analytics firm Kaiko, noting in a Monday report that bitcoin's 30-day volatility has spiked to 70%, nearly double last year's levels and close to a peak in March when bitcoin hit its latest all-time high.
Bitcoin 30D historical volatility. Image: Kaiko.
Hougan suggested three main theories that are driving this “September effect.”
Firstly, September has historically been a poor month for all risk assets, particularly in the tech-heavy Nasdaq, where volatility increases after the slow summer months. Secondly, the Securities and Exchange Commission's fiscal year ends in September, often leading to a surge in enforcement actions, especially in the crypto space, which can weigh on prices. The SEC’s settlement with Galois Capital and the Wells notice against OpenSea are recent examples. Lastly, reflexivity plays a role, according to Hougan, as investors expect September to be a bad month, thus influencing market behavior and reinforcing the trend.
On the positive side, October is generally viewed as a better month for crypto, often referred to as "Uptober" due to its historically strong performance, Hougan noted.
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