Sold in May and gone': Seasonality of crypto asset returns
Tick, tick, next block. Bitcoin works like clockwork as they say. Approximately every 10 minutes, a new block of transactions is timed to the public ledger.
Obviously, time plays an important role in Bitcoin's protocol. But what about the seasons?
Traditional finance research provides abundant evidence on the seasonality of equity returns. You may have come across terms like “January Effect” or “Shift Tuesday.”
You can observe statistically significant seasonal performance patterns on almost any time frame: Quarterly, monthly, weekly, daily, hourly, etc.
The saying “sell in May and get out” has been around since the 19th century, as the summer months tend to show significant weakness in equity returns compared to other months of the year.
A look at Bitcoin's average monthly returns shows that the summer months of June to September also showed significantly lower below-average returns.
Why should we care about this?
Well, if you only hold cash during August and September (when you're on vacation) and only invest in Bitcoin the rest of the year, you'll outperform an investor who buys and holds Bitcoin by four times time!
Therefore, theoretically, statistically significant seasonal performance patterns can be used to derive significant alpha levels.
Furthermore, the seasonal average performance pattern also suggests that Bitcoin may continue to increase in the coming weeks until around June, when the seasonal average performance pattern suggests that bitcoin may pause for the next few weeks. summer months before continuing to increase at the end of the year.
Having said that, as mentioned above, seasonal performance patterns can be observed on almost any timeframe.
In this context, bitcoin seems to perform best at the beginning of the week (Monday - Wednesday) while performance over the weekend and especially at the end of the week has historically been below average.
Similar patterns can be observed during different trading hours: While performance during Asian trading hours (12am UTC – 6am UTC) is mostly below average, European ( 8am UTC – 4:30pm UTC) and US (2:30pm). UTC – 9pm UTC) trading hours typically show above-average performance historically. That being said, at the end of the US trading session (9pm UTC), Bitcoin's returns were historically the worst.
Similar intraday performance patterns can also be observed in the traditional FX markets, where most trading volume occurs during the cross between European and US trading hours (from 2:30 p.m. pm UTC to 4:30 pm UTC).
Bitcoin trades 24/7/365 globally, but price fluctuations are ultimately a product of human action. It is therefore no surprise that “sell in May and be gone” also seems to apply to Bitcoin's return profile.
Although Bitcoin continues to operate like clockwork, its performance is ultimately determined by how long we are awake or asleep, when we start working, and when most of us are on vacation or not working. job.
This is not investment advice.
