Bitcoin ETF manager Bitwise published a report this week explaining why almost every September – including this one – is a bad month for Bitcoin.
The asset’s sour performance comes down to three factors: sinking risk assets, SEC enforcement actions, and a negative feedback loop.
Bitcoin’s September Blues
“Since bitcoin started trading in 2010, the asset has fallen 4.5% on average during September,” wrote Bitwise CIO Matt Hougan in a Monday memo. “That’s by far the worst month, and one of only two months with a negative average return.”
Bitcoin’s other typically negative month is August, which averages a 1.5% price drop every year. As of September 10, 2024, Bitcoin’s price is down 11.6% since August 1, including a 7% loss this September alone.
“The September effect” didn’t start with Bitcoin. Since 1929, September has historically been the only month when stocks fall rather than rise.
CME Group attributes the century-long history of poor stock performance to traders’ vacation schedules – often seeking to rebalance their portfolios after low-volume, sideways summer trading periods. Many mutual funds also end the fiscal year in September, incentivizing them to purge their portfolios and harvest investment losses at the time.
This September is no different, with the NASDAQ 100 down 6% this month.
Then there’s the Securities and Exchange Commission (SEC), which also runs on an October-September calendar year. Bitwise says SEC lawyers tend to ramp up their enforcement actions this month in order to meet their yearly quotas.
“We’ve already seen a meaningful settlement with crypto fund provider Galois Capital as well as a Wells notice against NFT platform OpenSea this month,” Bitwise noted. Hougan added that he’s heard “rumors of larger enforcement actions” coming down the pipe, piling onto actions already filed against the world’s largest crypto firms by the agency over the past two years.
Finally, September’s poor timing and track record of disappointment for markets has created a reflexive feedback loop, where traders sell their assets in preparation for a poor September, further contributing to down markets.
“While that might not sound earth-shattering, it’s no less true: Expectations move markets,” he said.
Wait for Uptober
While September is usually a sad month for BTC, the following October is quite the opposite. The colloquially termed “Uptober” has averaged 29.5% returns since 2010, followed by 37.5% average gains in November – Bitcoin’s best month historically.
Hougan believes there are also several uncertainties for crypto on the horizon. The U.S. Presidential election, which is currently a toss-up, could make or break crypto prices depending on whether Donald Trump is elected. Investors are also unsure of how aggressively the Federal Reserve will start cutting interest rates, and how many more institutional flows the Bitcoin ETFs will attract.
“My base case remains that we see a significant rally as this uncertainty starts to dissipate in October and November,” Hougan concluded.