Does it Fall Every September? Everything You Know about the September Market Trend

[TL；DR]:

Since 2013, Bitcoin has declined in September for 8 out of 11 years, demonstrating a significant ‘September effect.’ This effect is not limited to the crypto market; most global stock markets also performed poorly in September.

September often brings traders to adjust their investment positions, realize selling pressure for consumption, and increase cautious sentiment triggered by multiple important events, leading to a weak performance in the financial market that month.

In the absence of substantial internal driving force, the crypto market is slowly accumulating new upward momentum and is expected to experience the almost annual surge of the “October effect,” but investors still need to be cautious about short-term fluctuations.

Introduction

Entering September, there have been many disagreements in the market regarding the volatility of the crypto market. Most believe the “September effect” will reappear this month, and monthly returns may deteriorate. However, there are also voices pointing out that Bitcoin will stop falling and rebound against the backdrop of interest rate cuts.

This article aims to analyze in depth, based on historical market trends, the possible price trajectory of Bitcoin in September and the driving factors behind it.

Does the Pattern of Falling Every September Reappear?

There are many established patterns and effects in the crypto market, and recently the view of the “September effect” that every September will lead to a decline has become popular, reflecting the general pessimistic sentiment towards the current market.

Based on the experience of price fluctuations in recent years, September is the most challenging period, with the highest number of declines among all months.

As shown in the figure below, Bitcoin has declined in 8 out of 11 years since September 2013. Even though 2015, 2016, and 2023 saw increases, the gains were very limited, at 2.35%, 6.04%, and 3.91%, respectively.

Source: coinglass

Whether looking at the average or median of monthly returns, September is the worst-performing period, which is the direct basis for what people call the ‘September effect.’

Ethereum‘s price performance is similar to that of Bitcoin, with more declines than increases in July, August, and September and greater volatility.

Source: coinglass

Aside from the pessimistic outlook in September, Bitcoin and Ethereum have traditionally had the lowest price performance in the third quarter, while their returns in the second quarter ranked first, showing significant seasonal fluctuations.

Source: coinglass

Similarly, the US stock market, which is associated with fluctuations in the crypto market, has not escaped the ‘September Curse.’ According to historical data, September was the worst month in the past century, with a negative average return rate reaching -0.78%. Specifically, the Nasdaq index, which has similar technology stock attributes to Bitcoin, has experienced eight declines in September over the past decade.

If the observation perspective is expanded to 70 countries/regions around the world, September also dominates the worst-performing stocks in terms of average and median, which can be regarded as an unbreakable rule of falling every September.

Source: public information

Why did September See More Declines and Fewer Gains?？

Based on historical data, the viewpoint of a price decline in September has been verified. Therefore, we need to explore why this empirical law has impacted the crypto market.

In fact, September often causes traders to adjust their investment positions, realize selling pressure for consumption, and intensify cautious emotions triggered by multiple important events that month, which leads to a weak performance in the financial market that month.

-Portfolio rebalancing: Traders adjusting their positions may be the primary reason. With the decrease in summer trading activity, European and American traders reuated and adjusted their investment portfolios after returning to the market in September, resulting in a significant increase in market volatility. Downward pressure often leads to low returns, which undoubtedly reflects the more cautious or profit-oriented investment characteristics adopted by re-entering traders in that month.

Source: public information

-Tax loss profit: Institutional investors tend to engage in tax planning towards the end of the quarter and year, especially in September, when they may sell loss-making stocks to reduce capital losses and sell profitable stocks to lock in profits, increasing market selling pressure.

-Macroeconomic data and performance expectations: September is an important period for companies to release their third-quarter performance expectations and key macroeconomic data (such as non-farm payroll reports, CPI, etc.). For example, Nvidia’s recent financial report (NVDA.US) has greatly affected the rise and fall of AI tokens. These data directly affect market confidence and traders’ short-term operations, exacerbating market volatility.

-Personal fund flow: Some individual investors choose to sell stocks to raise funds to pay for education expenses, back-to-school supplies, or debts incurred from holiday consumption after the summer vacation, which further affects the market’s supply-demand balance.

Of course, in addition to these macro factors, the crypto market often experiences a cooling-off period of emotional speculation after experiencing a strong performance in the second quarter, especially in the absence of obvious upward momentum. The macro-environment tends to be a conservative investment style, and high-risk assets like Bitcoin may naturally be neglected.

In summary, the September market’s poor performance is mainly due to a combination of seasonal portfolio adjustments, macroeconomic data, and performance expectations. However, it is worth noting that market downturns do not occur every September, and we will now look ahead to the complex environment that Bitcoin will face in September.

Is September Different this Year?

Compared to history, Bitcoin faces a complex impact of multiple factors, such as the Federal Reserve’s first interest rate cut, the risk of economic recession, and uncertainty in the US election in September this year, making this month particularly crucial and challenging for Bitcoin.

Firstly, let’s look at the expectation of an economic recession. The economic recession has not yet truly arrived, and the unemployment rate and nonfarm payroll data are still within a controllable range, which to some extent alleviates market concerns. The Fed’s statement also guides the market to believe that an economic recession has not yet become a reality, which helps maintain relative market stability. However, new economic data or policy changes may disrupt this stable state at any time, as discussed in our recent articles about the Sam’s Rule. Referring to various indicators, the likelihood of the US economy falling into an early recession is increasing.

Regarding the Federal Reserve’s interest rate policy, it is a foregone conclusion that a rate cut will be agreed upon in September. As the ISM August Manufacturing PMI report released yesterday showed that the US economy continued to shrink, the probability of a 50 basis point rate cut has increased from 30% to 41%.

Source: CME Group

Generally speaking, financial markets, including cryptocurrencies, may benefit from the Federal Reserve’s expected September interest rate cut as inflation has stabilized. Because interest rate cuts typically release liquidity and increase investment interest in risky assets, including cryptocurrencies, which may drive funds toward digital assets.

However, the manifestation of the effect of interest rate cuts takes time, and there is a delay in policy transmission, so the actual effect of liquidity improvement remains to be observed.

In addition, the US presidential election is an important topic in the current crypto market, especially the highly anticipated September 10 televised debate competition, which may increase market volatility. From the current perspective, Trump’s support may drive the adoption of crypto, while Harris’s election may bring about a stricter regulatory environment. The anxious public opinion game support rate also constantly affects policy support, the regulatory environment, market confidence, and many other aspects.

Source: Polymarket

At the time of writing this article, Bitcoin’s price has slightly increased but still remains below the 60-day moving average. The macro watch price has been fluctuating widely for nearly half a year, and in the short term, the market has gradually recovered from the sharp decline in early August. Both long and short sides will soon decide their direction at the $60,000 integer level.

Source: Polymarket

Overall, the crypto market faced the boost of the Federal Reserve’s interest rate cuts, external interference from the economic recession, and uncertainty in the September presidential election. In the absence of a substantial internal driving force, the crypto market is slowly accumulating new upward momentum and is expected to usher in the “October effect” of almost annual surges. However, investors still need to be cautious about short-term fluctuations.