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Does Seasonality Affect Bitcoin Prices?

Fredrik Vold
Last updated: | 3 min read

“Sell in May and go away” is a well-known saying among stock investors all over the world. The idea behind it is that stocks have a tendency to rally when the new year starts in January, partly due to mutual funds and others positioning themselves for the year ahead, and partly because individuals who sold at the end of the year for tax reasons, are now buying up shares again.

Source: iStock/aylinstock

Following the rally at the start of the year comes a period of cooling interest in stocks over the summer. Many investors and traders take some time off, and there is little new money flowing into the markets. As a result, stock prices tend to decline during the summer months of June, July, and August.

However, when the summer holidays are over and fund managers are coming back to work again, the opposite seems to happen. Everyone is looking to bring their new plans and investment strategies to life, and put capital to work. In addition, traders are starting to position themselves for the expected “January-effect.”

As a result, stock prices generally start to go up as we head into the fall.

Seasonality in the bitcoin market

The question many bitcoin traders have is if it’s possible to follow the same logic to make money in the bitcoin market.

The short answer to that is that the bitcoin market appears to be a very different animal.

First of all, because of the globalized nature of the bitcoin market, “tax selling” doesn’t seem to have the same type of impact as it has on stocks.

Another factor is the fact that the bitcoin market is largely driven by individual traders and investors who are often young and have little prior experience with investing. Compared to what the case is in traditional financial markets, there are very few institutions that are involved with bitcoin and cryptocurrencies.

One thing that makes it difficult to study how seasonality impacts bitcoin prices is the relatively short history of bitcoin. There is really not enough data available to be able to say something statistically significant about seasonal patterns of bitcoin prices over the course of a year.

Despite this, we can spot some indications that may be worth exploring further and taking note of in the years to come.

Bitcoin sell-off expected?

While the media has been freaking out about the sell-off in bitcoin this year, industry insiders and crypto market analysts have repeatedly pointed out that the heavy selling we have seen in the bitcoin market this year is nothing new.

In fact, it is something that can be expected to occur every year to a varying degree, and something we have seen happen again and again in this market.

Let’s take a look at what has happened early in the year for the past four years in the bitcoin market (keep in mind that these numbers are approximate):

2014: 60% decline by April before a brief recovery period
2015: 70% decline over the first two weeks of January before the market recovered
2016: 20% decline over the first three weeks of January before the market recovered
2017: 25% decline over the first two weeks of January before the market recovered
2018: 70% decline by February before a brief recovery period, followed by another sell-off

It’s not hard to see a pattern in these numbers, and it definitely seems to be a reoccurring phenomena in the bitcoin market.

So what can we learn from this? Well, we can say one thing for sure: The same “January-effect” as we see in the stock market clearly does not exist in the bitcoin market. Instead, the opposite scenario seems more likely.

If we look at the S&P 500 stock index in the US, we saw strong growth both in the beginning of 2017 and 2018, although the years prior to that saw more stable or even slightly declining markets.

Although the data presented here is far from enough to draw any definitive conclusions, it seems fair to assume that bitcoin prices do not follow the same seasonality as stock prices. While the end of each year appears to be a particularly good period for bitcoin, a sell-off in the beginning of the year is something we have seen again and again in this market.

As the bitcoin market matures, seasonal patterns will probably become even more prevalent and predictable, to the delight of all those who know what to look out for.