Should you just wait for October to trade Bitcoin?
Traders have been sitting on their hands lately with the Bitcoin (BTC) price being stuck between $29,000 and $30,000. This rangebound price action can’t continue forever, though.
Bitcoin awaits breakout
A recent report from Ark Invest entitled “Bitcoin – Breakout or Breakdown?” notes that “Bitcoin’s volatility dropped to a 6-year low during July, suggesting the potential for significant price action in either direction.”
This is not news to anyone watching the crypto markets lately.
Related: Bitcoin price bollinger bands echo January gains
What traders might not be anticipating, however, is the historical price action for Bitcoin during the months of August and September, along with the effects of monetary policy on cryptocurrency markets.
Markets haven't fully priced in Fed tightening
The Ark Invest report suggests that Fed tightening could be “a leading indicator of price deflation,” and notes that there can be a lag associated with monetary policy.
In other words, “the real economy and inflation have yet to digest 300 – 500 basis points” of Fed tightening. China’s exporting of deflation also adds fuel to the deflationary fire, the report states.
Federal funds effective rate: current and lagged. Source: Ark InvestThis puts the lagging effect of Fed tightening on course to collide with Bitcoin’s halving rally in 2024 – 2025. If Ark’s analysis proves to be correct, the next bull run will likely be tame compared to previous cycles.
Yet some analysts believe just the opposite: because the Fed has finished raising rates (or is nearing the end of its tightening cycle), the macro situation is about to become even more auspicious for Bitcoin.
Morpher CEO Martin Froehler recently told Forbes that he expects the 2023 Bitcoin rally to resume:
“We are almost done with the interest rate hike cycle, so the current macroeconomic headwinds will soon begin to fade. Simultaneously, we are about 9 months away from the next Bitcoin halving event, which historically has always propelled the price up dramatically,”Kyle DaCruz, director of digital assets product at VanEck, expressed similar sentiments to Forbes by saying that Bitcoin’s scarcity combined with unprecedented growth in the money supply could lead to a continued rally.
If history is any guide, however, that rally isn’t likely to materialize just yet.
BTC price rally to resume in 2024?
Historically speaking, August and September are the worst months of the year for BTC price.
From 2011–2022, August has seen positive performance for BTC only five times, with the other seven months being in the red. September is even worse with just four out of 12 months seeing positive performance.
Historical Bitcoin monthly price performance table. Source: Bitcoinmonthlyreturn.comWhat's more, five of the 12 negative Septembers saw only single-digit price decreases, a small move for an asset as historically volatile as BTC/USD. The average move in September has been -5%, while the average move in August stands at +0.73%.
The price of Bitcoin has indeed flatlined in the past weeks with BTC price volatility falling to record lows.
Meanwhile, Bitcoin market observer Will Clemente notes that all of Bitcoin’s negatively performing years have occurred two years post-halving, suggesting the worst of the bear market could be in the past.
Bitcoin's down years have all come in the second year after the halving. (2014, 2018, 2022)
These next two years should be cool pic.twitter.com/vVW0Dc4yvo
— Will Clemente (@WClementeIII) August 7, 2023This would mean that the largest gains for Bitcoin lie ahead through 2024 and 2025. As noted earlier, however, if this timeline coincides with the deflation and potential recession forecast by Ark Invest, downward pressure on BTC price offset many of the gains in the next potential bull cycle.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.