Bitcoin Price and Seasonality: The Coming Rally?
A confluence of technical and fundamental indicators has sparked a big rally in the price of bitcoin this week. The cryptocurrency has found support at $7,400 and, after a short breather, appears poised to test $8,000 in relatively short order.
While the debate over bitcoin’s short-term outlook continues, a historical price analysis reveals that the summer sizzle is nothing new. In fact, the months of July and August tend to exhibit strongly bullish patterns going back six years.
Bitcoin’s Hot Summers
The adage “sell in May and walk away” aptly describes trading patterns of traditional markets such as stocks but appears to go against the grain of bitcoin’s price patterns. Historically, bitcoin has generated large returns in the summer months. Going back to 2012, the only major outlier was 2014 when bitcoin rallied in July but fell in August.
While bitcoin has rallied over the past 48 hours, its gains for the month of July have been modest in comparison to previous years. A rosy August outlook suggests prices could be poised for a bigger breakout in the near term.
Although past performance is no guarantee of future success, seasonality plays a vital role in our understanding of the financial markets. In fact, there is an entire literature devoted to understanding how seasonal influences affect market prices.
Bitcoin: Starting Slow and Finishing Strong
Market researchers have also identified price patterns at different points of the year, with the “January effect” and “Santa Claus rally” forming a critical backbone to our understanding of seasonality.
Unlike stocks, which typically rise in January, bitcoin usually struggles out of the gate. Going back six years, the bitcoin price has declined in January in the following years: 2012, 2014, 2015, 2016 and 2018. Given the relatively small sample size, it’s not entirely clear why bitcoin struggles to start the year. However, the most recent January downturn was not unexpected given the previous month’s massive peak.
Although bitcoin often starts the year in a defensive position, the price has historically rallied in December. To get there, we usually contend with another bumpy month in the form of September.
Against this backdrop, the worst months for bitcoin tend to be January, May and September. So far this year, January and May have been difficult months for the cryptocurrency. It remains to be seen whether history will repeat itself in the coming months.
Bitcoin Price Levels
After a brief dip, the bitcoin price has held relatively steady on Thursday, with values hovering well north of $7,400. Trading volumes are a healthy $5.6 billion, well above the minimum threshold that usually accompanies a major rally attempt.
Bitcoin continues to trade near 40-day highs. Following the successful defense of $7,200, the bulls could be in position to extend the rally toward $8,000 – a level that has eluded BTC/USD for the better part of two months.
According to Barry Silbert, founder of the Digital Currency Group (DCG), the bitcoin price may have finally bottomed as institutional traders look to stake their position in the market.
In a recent interview with CNBC, Silbert said, “…the bears just kind of ran out of energy,” noting that bitcoin has managed to overcome overwhelming FUD.
“When the chair of the Fed says negative things about bitcoin, and Howard Marks says negative things about bitcoin, and Ken Griffin says negative things about bitcoin, and bitcoin doesn’t move, I think that’s a bullish sign,” he said.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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