Crypto September Jinx: Will ‘Redtember’ Cast a Pall Over Bitcoin’s Future?

As summer fades and the leaves begin to turn, a familiar chill descends upon the cryptocurrency market. September, a historically turbulent month for digital assets, has earned the ominous nickname “Redtember” for its tendency to usher in price declines.

This year, with the US Federal Reserve potentially poised to cut interest rates for the first time in four years and the shadow of a presidential election looming large, the question on every crypto investor’s mind is: Will the “September effect” rear its head once again, and will the ongoing scrutiny surrounding projects like Worldcoin further exacerbate the situation?

September: A History of Volatility

The “September effect,” a phenomenon observed in both traditional and cryptocurrency markets, referred to the tendency for asset prices to decline during the month of September. Bitcoin, the world’s largest cryptocurrency, proved particularly susceptible to this trend, experiencing declines in seven of the past twelve Septembers, as highlighted in a recent report by Kaiko, a digital assets data provider.

Matt Hougan, chief investment officer at Bitwise, echoed this sentiment in a note to investors, stating bluntly, “Septembers are terrible.” He pointed out that “since bitcoin started trading in 2010, the asset has fallen 4.5% on average during September. That’s by far the worst month, and one of only two months with a negative average return.”

This year appeared to follow the pattern. “With Bitcoin down 7.5% in August and 6.3% in September,” noted Kaiko in a recent report, adding to the unease was a surge in volatility. “BTC’s 30-day volatility spiked to 70%, nearly double last year’s levels and close to March’s peak when BTC hit its an all-time high,” Kaiko observed.

Ethereum, the second-largest cryptocurrency, experienced even greater volatility, fueled by factors such as liquidations by prominent trading firm Jump Trading and the launch of several Ethereum-based exchange-traded funds (ETFs).

#BTC

You just need to survive September

Because if history repeats, Bitcoin may be heading for three straight months of positive upside Monthly returns$BTC #Crypto #Bitcoin pic.twitter.com/cxU2B9YWAq
— Rekt Capital (@rektcapital) September 9, 2024

Uncertainties Abound

Hougan pointed to several contributors to the market uncertainty, which historically tended to be amplified in September. “Markets hate uncertainty, and there was a lot of uncertainty in the market,” he wrote.

The looming U.S. presidential election in November was one such factor. “The U.S. presidential election — which will have significant ramifications for crypto — was a toss-up,” Hougan noted. “I suspected we’d see the market struggle to find its footing until we have greater clarity over future leadership and policy.”

Adding to the complexity was the anticipation of a potential interest rate cut by the Federal Reserve. “The timing and scale of Fed rate cuts spurred fierce debate,” Hougan observed. “While there was broad consensus that easier money was coming, investors were feverishly recalibrating their bets.”

Navigating the “September Effect”

The “September effect” was often attributed to a combination of factors, including investors returning from summer vacations and rebalancing their portfolios, potentially locking in gains or taking tax losses before the year’s end. Hougan also pointed to the potential impact of increased SEC enforcement actions in September, as the agency’s fiscal year comes to a close.

Kaiko highlighted forward-looking indicators, such as implied volatility (IV), which “increased for BTC since the start of September after a retreat in late August.” The report also warned that “when short-term implied volatility is greater than longer-term gauges, this signals increased stress in the market and is known as an inverted structure. This inverted structure would mark a good time for a risk manager to reduce their market exposure and de-risk positions.”

A Glimmer of Hope?

Despite the historical headwinds and current uncertainties, there were some glimmers of hope for the crypto market. “Bitcoin’s cumulative trade volume for the first eight months of 2024 was up nearly 20% from the previous peak in 2021, approaching a record of $3 trillion,” Kaiko noted, indicating continued strong market participation.

Additionally, the recent settlement between Uniswap Labs and the CFTC, although resulting in a significant fine, had a relatively muted impact on the market. Kaiko’s report stated that “overall, leveraged tokens represented only a small fraction of Uniswap’s trading volumes and the immediate market reaction was relatively muted.”

Hougan believed a significant crypto rally could materialize after the current macro uncertainty subsides. “My base case remained that we saw a significant rally as this uncertainty started to dissipate in October and November,” he wrote. “The fact that this aligned with historical trends may or may not have been a coincidence. Either way, I was ready for it.”

A Pivotal Moment

As September unfolds, the cryptocurrency market stands at a critical juncture. The “September effect” casts a long shadow, the scrutiny surrounding projects like Worldcoin adds another layer of complexity, but the potential for a rate cut and sustained strong market participation could provide a catalyst for a rebound, as suggested by Hougan’s optimistic outlook. Investors would be wise to exercise caution, and closely monitor macroeconomic developments, regulatory announcements, and market sentiment to navigate the potential turbulence ahead.

Whether “Redtember” will live up to its ominous reputation or defy historical trends remains to be seen. The coming weeks will be pivotal in determining the direction of the cryptocurrency market for the remainder of the year.

Yona has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Daily is an official media and publication of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.

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