When it comes to discussing the forthcoming prospects of Bitcoin (BTC), traders are keenly eyeing the monumental $100,000 mark. However, this ambition could be short-lived as the financial market tends to see a dip in May according to historical data. Regarding this pattern, Jeff Mei, COO at BTSE, acknowledged it by saying that the upcoming couple of months can potentially be weak for the financial milieu, and hence, many investors abide by the ‘Sell in May and Walk Away’ strategy.
Seasonality Impact on Bitcoin Trading
Despite markets significantly underperforming over the past few months, it is believed that this year might rebut this usual trend. Bitcoin has already shown promising signs by hitting an almost $97K mark and with the other growth stocks making a comeback in the prior weeks. The weakness in GDP numbers emanating from the US might indicate a certain degree of risk. A successive negative growth in GDP in the next quarter will be suggestive of recession. However, Mei indicated that rate cuts can potentially lead to normalization and recovery.
‘Sell in May’ Market Adage
The ‘Sell in May and go away’ adage is a long-established seasonal concept in traditional financial markets. The belief that equity markets underperform during the summer contributes to this adage. This drop in performance is attributed to declining trading volumes, decreased institutional activity, and historical returns data. The phrase locates its roots to the early days of the London Stock Exchange. The original adage was, ‘Sell in May and go away, come back on St. Leger’s Day’, referring to a horse race event that takes place in mid-September.
Historical Underperformance of US Stocks
Historically, US stock markets perform significantly weaker from May through October than they do from November through April. This led the strategy to become a seasonal rule-of-thumb for investors. Interestingly, Bitcoin also demonstrates recurring seasonal patterns, largely driven by macro cycles, institutional flows, and retail sentiment. It has been observed that the asset’s performance during May has either been negative or muted in the past few years.
Bitcoin Seasonality Influences
Looking into the past, in 2021, BTC witnessed a 35% drop in May, marking it as one of the worst performing months for that year. In 2022, May proved negative again, with a 15% drop occurring amidst Luna’s collapse. In 2023, Bitcoin’s progress was flat but mildly positive, reflecting lower volatility. Despite these dips, Bitcoin surged by 11% last May, followed by a notable rise of 52% at the end of May 2019. This turnaround signaled Bitcoin’s maturity after 2018’s altcoin cycle. Red May months are typically succeeded by lesser performance in June, with four out of the past five June months ending in negative returns.
Seasonal Momentum Influence
These patterns do not guarantee future performance but give an insight into how crypto markets might respond to macroeconomic and seasonal fluctuations, particularly as more institutional capital enters the market. Traders might prefer caution due to historical price seasonality and fading momentum after strong Q1 rallies. Meme coins and altcoins might face substantial vulnerability to pullbacks, considering their recent speculative flows and hype-driven rallies.
Average Return Rates
In the S&P 500, from the 1950s, May to October saw an average gain rate of a mere 1.8% with about 65% of those six months showing positive returns. On the other hand, November through April showed stronger performance. Vugar Usi Zade, COO at crypto exchange Bitget, pointed out that in the past 12 years, while Bitcoin had average Q2 returns at 26%, the median stood only at 7.5%, indicating an outlier-driven performance and recurring volatility.
Possible Market Patterns
Zade further elucidated by observing that the BTC average return dropped to 6% in Q3 (July-September), and the median turned slightly negative. This suggests a pattern of post-Q2 fatigue or consolidation. This overlapping seasonality gives rise to caution as we approach May. The strongest period for Bitcoin has historically been Q4, which sees an average return of +85.4% and a median of +52.3%. In contrast, Q3 has more muted or negative outcomes.
In conclusion, the market psychology in relation to crypto still responds to narratives, and ‘Sell in May’ could become a self-fulfilling prophecy. This could be particularly true if the market technicalities start to deteriorate, and the sentiment becomes negative.
