Why was September so bad for Bitcoin?
Three theories:
Because they work against all risky assets. See technology stocks.
It’s SEC enforcement season — those Wells notices must be issued by September 30.
People expected things to be bad in September, and they were.
Which one is the most convincing?
September is the cruelest month. Since its inception in 2010, Bitcoin has lost an average of 4.5% in September. September was Bitcoin’s worst month to date and one of only two months with a negative average return rate.
Bitcoin average monthly return rate from 2010 to 2024
Chart source: Bitwise Asset Management, Glassnode and ETC Group Bitcoin monthly average return rate from 2010 to 2024; data range is August 2010 to September 2024.
On closer inspection, things aren't getting any better. Bitcoin has declined in nine of the 13 Septembers on record, according to detailed analysis by NYDIG. September 2011 was Bitcoin’s worst month ever, falling 41.2%. Bitcoin has fallen 7% so far this month as of Sunday.
As the Green Day song goes, "Wake me up when September ends."
What drives the “September Effect”?
There is a lot of discussion about the causes of the September effect. While no one theory is particularly convincing, I've found three main ones:
1. September was a bad month for all risk assets
Bitcoin isn’t the only asset affected by the back-to-school season. Since 1929, September is the only month in which stocks have fallen more often than they have risen. The impact is particularly pronounced in the tech-heavy Nasdaq 100 Index.
Economists have tried to attribute this to a variety of factors — heightened volatility after a summer slowdown, mutual funds suffering losses at the end of the fiscal year — but no one is sure.
Whatever the cause, it's happening again: As of Friday, September 6, the Nasdaq 100 had fallen nearly 6% this month.
Nasdaq 100 Average Monthly Gains
Source: ChartoftheDay.com Data range is January 1985 to December 2023.
2. SEC enforcement season puts pressure on cryptocurrencies
The SEC's office hours are from October to September each year. Historically, this means you tend to see a lot of enforcement actions in September as attorneys try to meet their quotas for the year. ¹ As expected, the SEC enforcement season is heating up: this month we’ve already seen a meaningful settlement with crypto fund provider Galois Capital, as well as a Wells Fargo notice against NFT platform OpenSea. Many predict that lawsuits and settlements against crypto entities will intensify by the end of the month. I wouldn't be surprised; I've been hearing rumors of a larger enforcement action since early summer, and we've long been warned about the dangers of SEC enforcement season.
I'm not sure the SEC's pending situation is enough to explain the "September effect," but it certainly doesn't help.
3. Reflexivity
Probably the best explanation I've heard for the September effect is that it's just self-reinforcing: people now expect September to be bad, and it is. While that may not sound earth-shattering, it's not: expectations drive markets.
By contrast, Bitcoin investors have historically favored October — after all, October is known as the “Uptober,” thanks to Bitcoin’s average 30% gain for the month. This may have triggered the animal spirits in investors. Historically, October and November are among the best months for cryptocurrency investors.
prospect
Like many people, I'm not sure what to make of the September Effect. It's unclear how much of an impact the above factors have, whether this is purely an anomaly or if there are various yet-to-be-explored forces at work. Regardless, it is affecting the psychology of today’s market.
What I do know is this: Beyond seasonal factors, the most important thing is to pay attention to the specific conditions of the current market. As I did so, I began to understand the reasons behind cryptocurrencies' weakness this September.
Markets hate uncertainty, and there is a lot of it right now. Consider this:
The U.S. presidential election will have a major impact on cryptocurrencies. The winner is currently very close, and the odds vary depending on whether you focus on Polymarket, PredictIt or 538. I think until we have a clearer picture of leadership and policy going forward, we're going to see the market struggle to find its footing.
The timing and extent of the Fed's interest rate cuts have sparked heated debate. Despite widespread belief that easier monetary policy is imminent, investors are feverishly recalibrating their bets: The odds of a 50 basis point rate cut in September have fallen, but the odds of a rate cut of more than 125 basis points in December have risen.
ETF flows have been mixed. While inflows into Bitcoin and Ethereum ETFs have declined (the U.S. Bitcoin ETF just experienced its longest period of net outflows since its launch in January), if you look closely you’ll notice that investment advisors are adopting the Bitcoin ETF’s Faster than any new ETF in history.
My base case prediction is that as this uncertainty starts to dissipate in October and November, we will see a sharp rebound. This is consistent with historical trends, which may or may not be a coincidence. No matter what, I'm prepared.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "MarsBit"
Original author: Alvis, Mars Finance
