September often comes with a cloud of caution that hovers over the digital asset market, particularly for Bitcoin traders. This phenomenon, commonly known as the “September Effect,” refers to the historically bearish performance of Bitcoin during the month.

What is the “September Effect?”

The September Effect is considered to be a market anomaly rather than an event with a causal relationship. Both stock market returns and digital asset returns are historically relatively weak during the month of September.

Although most economists and market professionals argue against the existence of the September Effect, some popular hypotheses for the September Effect include:

• Retail rejiggering: Investors come back from summer vacation ready to lock in gains as well as tax losses before the end of the year.
• Tuition turmoil: Individual investors liquidate stocks going into September to offset the cost of school for their children.
• Self-fulfilling prophecy: The idea that since investors expect the September Effect to occur, market psychology takes hold and sentiment turns negative in alignment with those expectations.
• Institutional end-of-quarter maneuvering: Institutional investors and mutual funds may also sell toward the end of September as the third quarter comes to a close to lock in profits going into the end of the year.

Bitcoin’s Historical Performance by Month

Historical chart via CoinGlass

Since 2013, Bitcoin’s average monthly return has been -4.56% (with a median monthly return of -4.35%). The only other month with a negative average return over this period is June, with a barely red -0.35%.

However, it’s not just Bitcoin that has been prone to a September slump. As you can see below, major indexes also historically struggle in September.

What to Watch for This Month

Federal Reserve Expected to Ease Interest Rates

The Federal Open Market Committee (FOMC), which is a division of the Federal Reserve responsible for setting monetary policy, meets eight times per year to evaluate the health of the economy and make key decisions regarding the federal funds rate.

The next meeting is scheduled for September 17th & 18th, and the broader expectation is that a rate cut may be coming.

Presidential Election

As the 2024 U.S. Presidential election draws closer, there are certainly factors at play that can influence price action across the broader digital asset market.

Fundstrat’s Vice President of Digital Asset Strategy Sean Farrell shared on Yahoo Finance’s “Morning Brief”, “It would be silly not to view the election as a critical factor that will come into play when thinking about crypto prices… Our in-house view is that if Trump were to get elected, that would certainly slap on a premium to crypto asset prices. Bitcoin, a lot of alts (alternative coins) that will now have a clearer path forward in terms of market structure and legislation that will support their their growth here in the US.”

Bitcoin ETF Inflows vs. Outflows

While spot Bitcoin ETFs do not directly affect the price of Bitcoin, they can indirectly affect their price in several ways through increased adoption, market validation, and increased liquidity.

Multiple Bitcoin ETFs saw net outflows in the last week of August, and these inflow and outflow numbers continue to be closely monitored by traders.

My Take

I’m not a short-term trader.

I help my clients make long-term strategic investments that will help them achieve their long-term goals.

Understanding short-to-medium-term cash needs is critical to this process. If you have enough cash on hand, then you can worry a lot less about your invested capital during times of volatility.

With the market near all-time highs, now is as good a time as ever to assess your risk tolerance and cash needs over the next 12-18 months.

I’m typically not going to shift allocations more than 10% in either direction from a client’s core risk tolerance to capitalize on short-term market dislocations. However, every client situation is different and may require a more personalized approach.

Those who are not sure about what to do when things look more uncertain should consult their financial advisory team to make sure that all parties are on the same page with respect to their game plan.

Stay Informed on News Relating to the Digital Asset Market

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Investment advisory services offered through Crossover Capital Brands, LLC (dba Crossover Capital), a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

This material is intended for informational purposes only. It should not be construed as legal or tax advice, and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third party sources, and is believed to be reliable.

Alternative investments – such as hedge funds and private equity/venture capital funds – are speculative and involve a high degree of risk. Likewise, the emergence of digital assets comes with its own speculative characteristics and involves a high degree of risk. Various digital assets have unique features, and the regulatory risk environment continues to change as governance requirements, rules, and lawsuits emerge. There may be material differences in the type of marketplaces available for digital assets, and there could be significant restrictions or limitations on withdrawing from or transferring these types of investments. Digital assets may incur higher fees when compared to traditional assets, and these expenses may offset returns.

Crossover Capital may not be able to independently verify digital asset valuations provided by institutions that hold or offer digital asset services. As a result, Crossover Capital will generally rely on information reported to it by third parties. As such, the information contained herein is for informational purposes. Clients should recognize that they may bear digital asset-based fees and expenses at the manager-level, as well as indirect fees, expenses, and performance-based compensation for digital assets. Spot bitcoin exchange-traded products were recently approved for listing and trading by the SEC. However, such approvals do not indicate SEC approval to use or invest in bitcoin. Clients should remain cautious and aware of the various risks associated with digital assets that have a value tied to bitcoin or other crypto related products.