TL;DR

• A rate cut by the Federal Reserve could influence the performance of risk assets such as Bitcoin.

• September has historically been a challenging month for Bitcoin, with declines in seven of the last twelve years.

• Bitcoin and Ethereum volatility has increased significantly compared to the previous year, reflecting uncertainty in the market.

The dynamics of financial markets are often influenced by historical patterns and economic events.

One such pattern is the “September effect,” a trend in which risk assets, including Bitcoin, typically face challenges during this month.

So far in 2024, Bitcoin has followed this trend with a drop of 7.5% in August and 6.3% in September, according to data from Kaiko’s latest report.

This pattern aligns with historical data, where Bitcoin has seen declines in seven of the last twelve Septembers.

The expectation of a rate cut by the US Federal Reserve could be a factor counteracting this effect.

The Fed is set to make its first rate cut in four years, which could potentially benefit risk assets like Bitcoin.

However, the effectiveness of this measure in reversing Bitcoin’s downward trend remains uncertain.

In September, Bitcoin volatility has reached elevated levels, with its 30-day volatility increasing by 70%, almost double last year’s levels and close to the peak recorded in March, when BTC reached its all-time high.

Ethereum has also experienced significant volatility due to specific cryptocurrency-related events, such as liquidations and ETH-focused ETF launches.

Crypto Market Outlook and External Factors

Forward-looking indicators such as options implied volatility show a notable increase, especially for short-term options.

This inverted structure, where short-term volatility exceeds long-term volatility, indicates increased stress in the market and suggests that risk managers may want to reduce their exposure to the market at this time.

In addition, external factors such as the upcoming US CPI report and the presidential election in November are adding uncertainty to the market.

Volatility in U.S. stock markets typically increases one to three months before elections, especially if the ruling party is perceived as a likely loser.

This political uncertainty may influence investor behavior and, consequently, the cryptocurrency market.

Despite the prevailing volatility, the cryptocurrency market has seen increased participation.

Bitcoin’s cumulative trading volume for the first eight months of 2024 is close to hitting record highs, indicating strong market interest even amid price declines.

While the Fed rate cut could offer some relief for Bitcoin and other risk assets, the overall market environment remains volatile and difficult to predict.

The combination of economic and political uncertainties continues to influence investor expectations and behavior.