Summer and Crypto: What you NEED to Know
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So this week has come and gone relatively fast and with it The crypto market has declined despite still sitting at a USD 2.2 Trillion total market cap, but don’t feel too disheartened at the current decline as there is a reason behind the pull back. Obviously we were all hoping for some bigger rises but it hasn’t happened.
A core reason for that is that the Crypto currency market is a lot larger today than it was a number of years ago with a lot more digital assets now available to investors and speculators alike. A large chunk of funds also sits outside of the Cryptosphere in ETF’s and these funds will continue to grow as more offers are opened up to investors.
Today we are going to take a look at what is driving the current decline in value across the sector and why you should be too alarmed as, well. It is common for this time of year. As the crypto currency market continues its rapid evolution seasoned investors have long been attentive to patterns that may guide their strategies. One such phenomenon that has garnered attention is the seasonal fluctuation in crypto asset returns. Particularly during the months from May to September.
Summer Trends
In Traditional financial markets there has long been recognition of the concept of seasonal performance patterns, with phrases like the "January Effect" permeating investment discourse. Dragosch highlights a similar trend in the crypto space, with the adage "sell in May and go away" resonating among investors. This phrase echoing from the nineteenth century provides an insight of a consistent weakness in equity returns during the summer months, a trend mirrored in crypto markets.
Analyzing Bitcoin's average monthly returns Dragosch's research reveals a clear downtrend during the US summer periods particularly between June and September. For investors this pattern holds significant implications. Simply holding cash during August and September traditionally associated with holidays and investing solely in Bitcoin during other months could yield returns four times greater than a buy and hold strategy throughout the year.
Understanding these seasonal patterns opens avenues for investors to derive alpha and capitalize on statistically significant trends to optimize their strategies. The data suggests that Bitcoin's rally may persist until June followed by a potential pause during the summer months before resuming its ascent towards the year's end.
Understanding these patterns
Delving deeper Dragosch uncovers intriguing intraday patterns within Bitcoin's trading hours. The beginning of the week particularly Monday through to Wednesday tends to yield better returns. whereas performance wanes towards the weekend. Similarly trading hours exhibit distinct trends, with European and American sessions historically outperforming Asian hours. However, towards the end of the American trading session returns have historically dwindled mirroring broader market sentiments.
These patterns extend beyond Bitcoin and can also be seen with traditional FX markets where trading volumes peak during the intersection of European and American hours. Despite Bitcoin's 24/7 trading cycle human activity remains the primary driver of price fluctuations. Hence, it's unsurprising that traditional adages like "sell in May and go away" hold relevance in the cryptosphere which shows the interconnectedness between market behaviour and human activity across all markets.
In essence, while Bitcoin operates relentlessly its performance is intricately tied to human behaviour, influenced by factors like work schedules, holidays and global trading sessions as well as the same issues that impact mainstream markets. As investors navigate the ever changing landscape of crypto currencies understanding these seasonal trends becomes a primary focus in order to maximise returns.
By leveraging historical data and insights from experts like Dragosch and other market researches investors can fine tune their strategies and potentially mitigate risks and optimizing returns.
May to September
The months from May to September have historically been associated with subdued crypto performance which echo the broader seasonal trends observed in traditional markets. However, armed with insights into these patterns investors can navigate volatility with greater certainty.
harnessing seasonal trends to inform your decision making process is a great way to stay in front. As the crypto market continues to evolve you must stay attuned to these nuances as it becomes indispensable for people seeking to thrive in a dynamic and ever changing landscape.
Image sources provided supplemented by Canva Pro Subscription. This is not financial advice and readers are advised to undertake their own research or seek professional financial services.