Bitcoin Breaks The Mold With Strong September Gains, But Will It Continue?

Bitcoin has had a barnstorming September despite history indicating otherwise. In a month where the world’s favorite crypto asset usually falls flat on its face, many were caught by surprise as it surged ahead, making impressive gains. 

Bitcoin’s price is currently hovering at around $64,400, up 9.36% for the month, according to data from Coinmarketcap. Although it has dipped in the last 24 hours, there are strong signs that the rally could continue, driving the asset to a new all-time high in the coming days or weeks. 

The impressive gains this September come in stark contrast to its usual performance, where it has traditionally dropped by an average of 5.9% in a phenomenon that has come to be known as the “September effect”. 

What is the September effect?

The month of September is notorious among investors, and not only in the crypto markets. The September Effect echoes across almost every financial market, including traditional bellwethers like the S&P 500, commodities, and oil. 

According to CoinGlass, the value of Bitcoin declined in eight of the last ten Septembers before this year, making it the worst month on the calendar for the top digital asset. 

A report by GRVT looks at the reasons behind the September Effect, and finds that they’re quite varied. For one thing, the market tends to experience much higher trading volumes in September compared to the preceding months. The drop in trading volume occurs due to people enjoying their vacations. Traditionally, September is the month that many traders are back in business and so trading volumes pick up a notch, leading to increased volatility and selling pressure. 

GRVT also cites other factors, including tax deadlines, with the U.S. fiscal tax year ending on September 30, for example. This entices investors to sell digital assets such as Bitcoin, in order to realize gains or for purposes of tax planning. In addition, September is traditionally the month when key economic data is published and when governments introduce new fiscal policies such as decisions on interest rate cuts. The uncertainty ahead of these decisions can cause investors to become more cautious, adding to the selling pressure on Bitcoin. 

Profit taking after the summer is another reason for Bitcoin’s September headaches, and the historical overhang – where investors “know” the price will decline, prompts many to sell their assets in the hope of buying back in later when the price has dropped. 

Why was the spell broken?

But those who thought they knew were in for a shock, as Bitcoin has enjoyed one of its best Septembers on record, breaking the historical trend. 

Analysts say that the U.S. Federal Reserve’s surprising interest rate cut is the most likely catalyst for Bitcoin’s rally. On Sept. 18, it announced a jumbo-sized cut of 50 basis points in its key benchmark interest rate, the largest since 2020 when COVID was ravaging the global economy. 

That came shortly after the European Union announced on Sept. 12 that it was lowering its deposit rate by 25 basis points, following a similar cut in June. Then on Sept. 25, China’s central bank said it was reducing its medium-term lending facility rate from 2.3% to 2%, representing a cut of 30 basis points, the biggest it has ever announced. 

The cuts led to noticeably higher inflows in spot Bitcoin EFTs over the last week, with BlackRock’s iShares Bitcoin Trust adding almost $185 million in new capital in a single day last week. 

Looking ahead

Bitcoin’s super September serves as a reminder to investors that the crypto markets are far from predictable. While historic patterns suggested that it was perhaps a good time for investors to cash in, there were plenty of other indicators that disagreed with that assumption. As always, it’s necessary to go above and beyond with a much more comprehensive analysis that considers the broader financial markets and economic dynamics. 

To navigate the volatility of Bitcoin and crypto, it’s necessary to focus on fundamental economic indicators and stay cognizant of the overall market’s sentiments, which may have revealed a more bullish outlook. 

As we approach the holiday season, it’s likely that volatility in Bitcoin’s price will become even more pronounced and unpredictable. Still, there is a lot of anticipation that this new period of lower interest rates is going to increase demand for a wide range of assets, including commodities like gold, traditional stocks and shares, as well as crypto. 

One telling indicator is that Bitcoin moves in the same direction as global liquidity does 83% of the time, according to a note by investment strategist Lyn Alden. That’s a significantly higher rate than any traditional asset class. Many of the traditional markets have endured long declines due to higher interest rates over the last two years, so there’s plenty of optimism that these markets might rebound. If that happens, the prospects for Bitcoin are promising, to say the least. 

In any case, investors would do well to remember that while Bitcoin’s short-term price movements are hard to predict, its real value lies in the underlying technology and its status as a key store of value. Recent developments suggest that, if anything, Bitcoin’s potential is only increasing with progress around DeFi and tokenization. For those with more patient hands, Bitcoin will always be a solid, long-term bet.