3 Reasons Why Bitcoin Is Underperforming in September – Bit by Bit

Bitcoin ETF manager Bitwise released 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.

The Bitcoin September Blues

“Since bitcoin began trading in 2010, the asset has fallen an average of 4.5% during September,” Bitwise CIO Matt Hougan wrote in a Monday note. “This is by far the worst month, and one of only two months with a negative average return.”

The other typically negative month for Bitcoin is August, which sees 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 in which stocks fall instead of rise.

CME Group attributes the stock’s century-long history of underperformance to the holiday schedules of traders, who are often looking to rebalance their portfolios after low-volume summer sideways trading periods. Many mutual funds also end their fiscal year in September, incentivizing them to purge their portfolios and take investment losses at that time.

This September is no different, with the NASDAQ 100 up 6% this month.

Then there is the Securities and Exchange Commission (SEC), which also operates for a calendar year from October to September. Bitwise says SEC attorneys tend to ramp up their enforcement actions this month in order to meet their annual quotas.

“We’ve already seen a significant settlement with crypto fund provider Galois Capital, as well as a Wells warning against NFT platform OpenSea this month,” Bitwise noted. Hougan added that he has heard “rumors of larger enforcement actions” that are on top of the actions the agency has already brought against the world’s largest crypto companies over the past two years.

Finally, the bad timing of September and the markets’ track record of disappointment has created a reflexive feedback loop, where traders sell their assets in preparation for a poor September, further contributing to lower markets.

“While this may not seem puzzling, it is no less true: expectations move markets,” he said.

Wait for Uptober

While September is usually a dismal month for BTC, the following October is quite the opposite. The colloquially called “Uptober” has averaged returns of 29.5% since 2010, followed by average gains of 37.5% in November, Bitcoin’s best month ever.

Hougan believes there are also several uncertainties for crypto on the horizon. The US presidential election, which is currently a toss-up, could make or break cryptocurrency prices depending on whether Donald Trump is elected. Investors also don’t know how aggressively the Federal Reserve will begin cutting interest rates and how much more institutional flows will attract Bitcoin ETFs.

“My base case remains that we see a significant rebound as that uncertainty begins to dissipate in October and November,” Hougan concluded.

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