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The seasonality of cryptocurrency returns
Tick, tock, next block. Bitcoin works like clockwork, as they say. Approximately every 10 minutes a new block of transactions is entered into the public ledger.
Obviously, time plays an important role in the Bitcoin protocol. But what about the seasons?
Traditional financial research provides ample evidence of the seasonality of stock returns. You’ve probably come across terms like “January effect” or “turnaround Tuesday.”
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Statistically significant seasonal performance patterns can be observed on virtually any time frame: quarterly, monthly, weekly, daily, hourly, and so on.
The saying “sell in May and walk away” has been around since the 19th century, as historically the summer months tend to show notable weakness in stock returns compared to other months of the year.
A look at Bitcoin’s average monthly returns reveals that the summer months between June and September also showed significantly lower than average returns.
Why should we care about this?
Well, if you had only held cash during the months of August and September (when you were on vacation) and only invested in Bitcoin during the rest of the year, you would have outperformed a buy-and-hold investor in Bitcoin by four times!
Therefore, statistically significant seasonal performance patterns could theoretically be used to derive a meaningful alpha.
Furthermore, the seasonal average performance model also suggests that Bitcoin may continue to rise over the next few weeks until around June, when the seasonal average performance model suggests that Bitcoin may take a breather during the summer months before continuing its ascent towards the end of year. .
That said, as mentioned above, seasonal performance patterns can be observed on virtually any time frame.
In this context, bitcoin seems to have performed better at the beginning of the week (Monday – Wednesday), while the performance towards the end of the week and especially on weekends has historically been below average.
Similar patterns can be observed during different trading hours: while performance during Asian trading hours (00:00 UTC – 6:00 UTC) was mostly below average, European (8:00 UTC – 16:30 UTC ) and American (14:30 UTC – 21:00 UTC) trading hours usually historically show above-average performance. That said, towards the end of the American trading session (9:00 PM UTC), Bitcoin returns were historically the worst.
Similar intraday performance patterns can also be observed in the traditional FX market, where the majority of trading volumes occur during the intersection between European and American trading hours (between 2.30pm UTC and 4.30pm UTC).
Bitcoin is traded 24/7/365 around the world, but price fluctuations are ultimately a product of human action. Therefore, it is not surprising that “sell in May and walk away” seems to apply to Bitcoin’s return profile as well.
While Bitcoin continues to run like clockwork, its performance is ultimately determined by when we are awake or asleep, when we start work, and when most of us are on vacation or not at work.
This is not investment advice.