The end-of-month "pump" and beginning-of-month "dump" pattern in cryptocurrency markets could be driven by a few key factors, though it's more of an observed trend than a hard rule. Here are some of the main reasons often suggested:
1. Institutional Portfolio Rebalancing
Monthly Rebalancing: Institutional investors, funds, and trading firms often rebalance their portfolios at the end of each month. This can lead to increased buying pressure on cryptocurrencies toward the end of the month as these investors look to adjust their positions.
Profit-Taking at the Start of the Month: In the first few days of a new month, some traders may take profits from their recent gains, leading to selling pressure.
2. Retail Investor Patterns
Payday Effect: Many retail investors receive their salaries toward the end or beginning of the month, potentially creating increased buying pressure in the final days of the month as they allocate a portion of their income to investments like crypto.
FOMO and Hype Cycles: Many retail investors may jump into trending coins toward the end of the month, which can lead to temporary price increases. As the new month begins, some may sell off to lock in profits, resulting in a price drop.
3. Market Sentiment and Momentum
Psychological Factors: When prices are rising, it can create positive momentum or "FOMO," which can push prices higher. As the hype settles at the start of a new month, that momentum may fade.
Quarterly and Monthly Expirations: Some cryptocurrencies are tied to futures contracts that expire monthly or quarterly. These expirations can lead to increased volatility as positions are closed and adjusted, especially toward the end of each month.
4. Tax and Accounting Considerations
Reporting Cycles: Businesses and investors tracking monthly or quarterly performance may adjust their crypto holdings accordingly, which can create buy pressure at the end of the month and sell pressure at the beginning.
This pattern doesn't always hold, but these are some of the factors that likely contribute to this end-of-month behavior in cryptocurrency markets.
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