 "Tokens representing cryptocurrencies bitcoin and ether plunge into water in this illustration taken May 17, 2022. File Image/Reuters")
Bitcoin, the world’s largest cryptocurrency by market capitalisation, is on track for what could be one of its most significant September performances.
Historically, Bitcoin has struggled during this month, but 2024 might be different. As central banks around the world cut interest rates, Bitcoin is showing signs of resilience, suggesting it may finally overcome the so-called “September jinx.”
A look into Bitcoin’s ‘September jinx’
Over the past decade, Bitcoin has consistently posted negative returns in September. According to Bloomberg data, the cryptocurrency has averaged a 5.9 per cent decline during this month.
In 2023, Bitcoin followed this pattern by losing 8.73 per cent in August, reinforcing market expectations for a similar downturn in September.
However, this year, Bitcoin has already risen over 10 per cent in September, in stark contrast to its historical trends. Smaller cryptocurrencies have also gained significantly, with some tokens climbing more than 20 per cent.
One of the key reasons for Bitcoin’s positive performance in September 2024 is a global shift in monetary policy. Major central banks, including the US Federal Reserve, European Central Bank (ECB), and the People’s Bank of China, have all moved to reduce interest rates in an effort to stimulate economic growth.
These lower borrowing costs have encouraged investors to increase their exposure to riskier assets like cryptocurrencies. As stocks, gold, and other financial instruments rise, Bitcoin appears to be benefiting from this broader trend of increased liquidity.
By September 2024, Bitcoin was trading at around $65,334, reflecting a 56 per cent increase for the year. While still below its March 2024 peak of $73,798, the cryptocurrency has gained strong momentum, particularly in light of US Bitcoin exchange-traded fund (ETF) inflows.
The factors & catalysts that are affecting the change
Recent analysis by Spot On Chain highlights numerous key reasons why Bitcoin may avoid its usual September slump this year.
The first factor is Bitcoin’s negative August performance, which might clear the path for a positive September. Historically, 43 per cent of negative Augusts have been followed by a rebound in September.
The second reason is the significant reduction in selling pressure. In July and August 2024, three major forces unloaded over 170,917 BTC (worth approximately $10.69 billion). The German government sold 49,859 BTC, while Mt. Gox repaid 95,958 BTC to creditors.
GenesisTrading also distributed 24,068 BTC as part of its repayment plan. With these large sales now behind the market, selling pressure has eased considerably.
Long-term holders increased their supply by 262,000 BTC in August, bringing their total holdings to 14.82 million BTC, or about 75 per cent of the total supply, noted Spot On Chain.
This reduction in selling pressure, combined with a robust long-term holding base, is another signal of Bitcoin’s potential to perform well this month.
Another major factor contributing to Bitcoin’s promising outlook is the potential for further interest rate cuts, particularly from the Federal Reserve. Lower rates could boost demand for Bitcoin and Bitcoin ETFs, as investors seek higher returns in riskier assets.
In addition to favourable economic conditions, regulatory clarity in the United States could provide a further boost to Bitcoin. The cryptocurrency industry is eagerly awaiting the outcome of the US presidential election, with many executives hopeful that clearer regulations will emerge in the coming months.
Moreover, the upcoming resolution of the FTX bankruptcy is expected to have a limited impact on the cryptocurrency market. The exchange owes $16 billion to creditors, but most repayments will be made in cash rather than cryptocurrency, limiting the risk of a market sell-off.
Lastly, the US government still holds 203,650 confiscated BTC, valued at around $12 billion. While this remains a potential selling force, recent movements indicate limited near-term sell-off risk. The government moved 35,516 BTC to Coinbase in 2023 and 2024 but opted to sell most of it over-the-counter (OTC), minimising price disruptions.
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Investors are cautiously optimistic, with the cryptocurrency already showing a 10 per cent gain this month. However, analysts are watching closely, with a failure to break above the $65,000 level “decisively” potentially signalling a weaker period ahead.
“The $65,000 level may prove “sticky” for a few hours due to the expiry of a large number of options contracts,” Caroline Mauron, co-founder of Orbit Markets told Bloomberg.
With inputs from agencies