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The Bitcoin Seasonal Effects

Bitcoin

September 19, 2020 | 

1994 Views | 

JOHN K MWANIKI | 

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Seasonality in assets is the regular and predictable price changes. Bitcoin, like the other assets, experiences seasonality. It comes with price fluctuations at specific periods of the year. Factors like market circles can be analyzed. 

Here is all you need to know about the cryptocurrency's seasonality; 

Understanding the Seasonality of Bitcoin 

Bitcoin has only been active in the market for a decade. This is a short time to establish a considerable pattern. However, there is still enough data to analyze price movements. 

Understanding seasonality requires one to look into the monthly, weekly, and daily changes. A report by Medium analyzes all the data from within the decade to establish seasonality. This is how the movements compare for the year, months and weeks;

  • Yearly Returns – the available data on the Bitcoin price movements shows active June and April. The last months are July and September. The months of October, November, and December come with relatively high gains. March, August, and December are outliers. The most profitable months for traders are February, April-June, and October-December. Buying at the beginning or April and selling at the end of the month provide high chances of losing

  • Weekday Returns – Bitcoin has several short positions for traders who don't want to wait for years. They tend to hold the coins for a few weeks before trading. They have to observe the weekday market movements of the currency. Wednesday is the busiest of the weekdays. Saturdays are the days with the highest margin of returns, while Thursdays experience drops. 

  • Hourly Returns – there are short position Bitcoin traders who trade the coins even faster. The scalpers and swing traders want to take advantage of the market the soonest. The most volatile Bitcoin hourly trading sessions are Friday 13:00–16:00, and Wednesday/Thursday from 16:00-17:00. The least active are Saturday, Sunday, and Monday mornings around 02:00-06:00. 

Effects of Seasonality on Bitcoin Prices

The viability of Bitcoin as a safe haven has been on debate for some time. Some of the trading quarters view it as the "digital gold." Gold has excelled in its role as the reserve commodity due to stability. The stability has even allowed it to back up the different fiat currencies at some point.

The case of stability is all about pricing. With stability, you can easily predict the asset's value. Gold started trading at a volume of 50,000 while valued at around $175. It has gained over the years to volumes of over 4 million and values of about $1990. The only time it defaulted was 2017 due to the oil crash.

The seasonality of the cryptocurrency works against Bitcoin pricing. The different high points of the coin see it trade at different values. There are no known specific highs or lows in any given month for the currency.

The lack of harmonized prices, however, doesn't seem deadly on the coin. The coin is still on the developmental stages. Even though some have predicted possible stability, it might take some time. The currency is still gaining use functions and developing as a medium of exchanges. 

Most traders also appreciate the seasonality. Bitcoin is volatile. 

The traders are used to the lows and highs. Any reduced activity of the coin leads to boring weeks. Users would either halt operations or look for other active assets

Timing is Everything 

Now that you understand the presence and need for seasonality, it is time to make it work for you. The difference between a loss and a profit in crypto trading is time. You are always looking to buy low and sell high. 

The seasonality analysis works for both short and long position traders. The long position works with the yearly returns. They get to observe the best months to buy the coins, hold, and trade. 

The short position traders rely on weekly and hourly changes. They also need better market analysis and tools.  It also takes a lot of time to analyze and understand the cryptocurrency's shorter market price movements. 

Seasonality in other assets 

Seasonality is a long-time market phenomenon. Several other assets have an established pattern. Bitcoin is on catch-up. These are some of the seasonality patterns in the other assets; 

  • Equities – the equity markets have some of the most popular seasonality. It has popularized the phrase "sell in May and go away" as the mantra for its seasonality. The months preceding May comes with an acute decline in the equities. Traders are better off selling or holding without any sales in the slow months. The other famous phrase in the equity market is the "Santa Claus Rally" and the "January effect."

    These references the equity markets' upward price movements from late December to the start of the year. Several pieces of research have confirmed the presence of the market phenomenon. They have established April and December as the best equity trading months. May and September are some of the most unfriendly. 

  • The US dollar – it might seem a surprise that the dollar is part of the currency affected by crypto. It is the most popular and stable currency. Features that make it the top world reserve currency. Still, USD comes with its fair share of seasonality. 

    The USD's seasonality comes in two halves. It tends to be stronger in the first half of the year. The second season from June to December is a little weaker. The seasonality of the dollar is, however, less strong than that of equity and cryptocurrencies. It affects the long position traders more than the short position ones. It also affects how the dollar exchanges with the other prime currencies.  

Bottom Line 

The seasonality of Bitcoin is one of the most exciting market phenomena. It keeps the market active with gains and losses. It takes the right timing to make the most out of the market movements. However, Bitcoin has limited data. Expect further studies in the future. 

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