After a cruel summer, crypto fans might be in for an unforgiving September, too.
The ninth month of the year has historically been one of the worst for the largest cryptocurrency, falling every September since 2017. Bitcoin has averaged an 8.5% drop for the month over the past five years, according to Bespoke Investment Group. Ether, the second-largest token, has also tended to suffer -- it has only risen a quarter of the time and has averaged a double-digit percentage decline.
“September is probably going to be another pretty volatile month,” Shawn Cruz, head trading strategist at TD Ameritrade, said in an interview. “The risk is to the downside,” he said, adding that “you probably see a little bit more of a downside sort of a bias in terms of where I think things can land.”
Cryptocurrencies have been choppy all year as the Federal Reserve and other central banks raise interest rates to combat historic inflation. Bitcoin is down roughly 60% this year and some other tokens have lost even more.
Digital assets have also moved similarly to US stocks all year, with correlations between the two remaining strong. September tends to be a tough month for equities as well and this year could prove no different as traders and investors await the Fed’s policy meeting that month.
Still, Ether has been surging in recent weeks ahead of a highly anticipated upgrade whereby the Ethereum blockchain is set to facilitate a move from the current system of using miners to a more energy-efficient one using staked coins. That means the seasonality factor might not be as strong this year.
“It’s important to look at last September and the September prior in thinking what’s going on here,” Leah Wald, CEO at digital-asset fund manager Valkyrie Investments, said in an interview. “But I do also think that each market environment should be considered individually especially depending on your trading style and time horizon.”
When you have an exponential grower -- like Bitcoin -- using linear tools like regressions and correlations might not work as well, said Mark Connors, head of research at 3iQ, a digital-asset manager. “I’m very excited about the performance of Bitcoin today,” he said in an interview. “The Ethereum upgrade will bring with it clarity on the value proposition.”
Amid Ether’s rally, Bitcoin’s market dominance has waned. In August, Bitcoin’s assets under management dropped more than 7% to $17 billion and its market share fell to roughly 68% of total assets under management, down from 77% in July, according to a report from CryptoCompare. Meanwhile, the $12.8 billion Grayscale Bitcoin Trust (ticker GBTC) lost its position as the most-traded trust product, with average daily volume for the fund totaling around $42 million versus the Grayscale Ether product seeing average daily volume of $49 million, the researcher said.
Meanwhile, futures are trading in backwardation and funding rates have stayed negative for two weeks, according to Vetle Lunde at Arcane Research. Open interest on perpetual futures are “on a vertical trend” in notional terms and is hovering around all-time highs.
“The hedging train is going full throttle,” Lunde wrote in a note. “Short-term, this selloff shows signs of being overextended, and this represents an intriguing area to make contrarian short-term bets.”
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