Bitcoin: Don’t Sell In May, Don’t Go Away
Executive Summary
Bitcoin has a consistently above average positive performance trend in June-July. While the performance anomaly is not evident in magnitude, it is statistically significant in terms of up/down months. Bitcoin has twice as many up periods as down periods.
This pattern reverses in August-September. Bitcoin has half as many up periods as down periods.
Seasonality
Seasonality is a predictable and recurring annual event, often considered a subset of market anomalies associated with behavioral finance. It differs from cyclical events that occur at intervals other than annual. A well-known example of seasonality is the January Effect, where stock prices tend to increase during the month of January, often attributed to taxloss harvesting and window dressing by investors.
Seasonal effects in traditional markets, particularly in the United States and Europe, have been dubbed "Sell in May and Go Away" and "The Halloween Indicator." Evidence suggests that this holiday effect is responsible for 30-50% of the total return on the market while exhibiting below-average variances. Fund managers often start the year by buying small, risky stocks to beat benchmarks, and once targets are met, they adjust toward less risky stocks to lock in returns. This behavior creates a seasonal pattern in returns and a "safe-looking" portfolio at year-end.
Bitcoin exhibits seasonality consistent with that found in equities, with the strength and consistency of its performance in October spawning the phrase "Uptober" among investors. The evidence suggests that bitcoin behaves like a risky investment, with higher returns accompanied by greater variance. On a seasonal basis, bitcoin behaves almost exactly like a
15× leveraged S&P 500 fund, with the resulting oneyear trend nearly identical, a statistical 98% match [Cane Island, 2021].
Bitcoin's Seasonal Returns: Insights from Two- Month Periods
Bitcoin has exhibited notable seasonal trends that can provide valuable insights. By analyzing Bitcoin's returns over specific two-month periods since 2015, we can uncover patterns that may help identify seasonal trends. This article delves into Bitcoin's performance at the end of various two-month periods throughout the year.
Methodology
The table titled "Two Months Ended (since 2015)" [Figure 1] is constructed by analyzing Bitcoin's performance over specific two-month periods ending in January, March, May, July, September, and November from 2015 onwards. For each period, the number of periods with positive returns and negative returns is recorded. Additionally, the percentage of periods that are positive or negative are calculated. The "up/down %" represents the ratio of positive periods to negative periods for each group, providing insights into the likelihood of experiencing positive returns during these specific two-month intervals (known as “batting average”).
Discussion
Across the entire dataset, there were 28 positive periods and 29 negative periods, indicating a neareven split. This highlights the volatile nature of Bitcoin, with roughly equal chances of experiencing gains or losses in any given two-month period.
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Figure 1
Bitcoin Two-Month Performance
Two Months Ended (since2015)
Strong Performance in June-July
The two-month period ending in July stands out with the highest up/down percentage of 207%, suggesting consistent and strong performance during this time. This period had 6 positive and only 3 negative periods, with the highest average return of +0.21 in positive periods. This indicates that mid-year has been particularly favorable for Bitcoin investments, potentially due to market optimism and other seasonal factors. It is important to note that this does not necessarily mean that the magnitude of returns is significantly higher, but rather that the batting average the frequency of positive returns is better.
Reversal in August-September
In contrast to the strong performance in the previous period, the two-month period ending in September shows the weakest performance, with an up/down percentage of 52%. This period had more negative outcomes (6 negative periods) compared to positive ones (3 positive periods), with a significant drop in average returns during negative periods (-0.21). This reversal suggests a pattern where gains made in midyear could be offset by losses in late summer and early fall.
Statistical Significance
To determine if the returns during the June-July period are statistically different or better than other periods, we performed an independent t-test. Null Hypothesis: The mean returns for June-July are equal to the mean returns for other periods. Alternative Hypothesis: The mean returns for June-July are different from the mean returns for other periods. The t-test results show a t-statistic of 2.281 and a p-value of 0.041. Given that the p-value is less than the common significance level of 0.05, we reject the null hypothesis. This indicates that the returns during the June-July period are statistically different from the returns in other periods and not merely a result of random chance.
Conclusion
Analyzing Bitcoin's performance over specific twomonth periods reveals distinct seasonal trends.
The seasonal effects observed in Bitcoin are consistent with those found in traditional equities. The twomonth period ending in July shows the highest up/down percentage (207%), indicating a better batting average for positive returns rather than significantly higher magnitudes. This suggests that mid-year, particularly June-July, is potentially driven by
market optimism and seasonal factors. Statistical analysis confirms that the returns during this period are significantly different from other periods, highlighting the importance of understanding seasonal trends.
Bitcoin exhibits considerable volatility, with a neareven split between positive and negative periods overall (28 positive vs. 29 negative). The period ending in September, however, stands out with the weakest performance, showing more negative outcomes (52% up/down percentage). This reversal from the strong June-July performance suggests that gains made in mid-year can often be offset by losses in late summer and early fall. Understanding this pattern can help understand the recurring nature of seasonal patterns.
The insights from this analysis are particularly relevant to those who wish to better understand Bitcoin's seasonal trends. Recognizing these seasonal effects can enhance decision-making and risk management. As always, while historical trends provide valuable insights, they should be considered alongside other market factors.
References
Cane Island Digital Research LLC. “Proof of Altseason.” Research Notes. 25 Oct 2021.
Disclosures
Bitcoin and digital assets are highly volatile, subject to manipulation, lack of regulatory oversight, and protective legal framework. Its value is largely derived from its acceptance as a store of value and a medium of exchange among those who use it. Consequently, prices may fluctuate widely and unexpectedly, resulting in long and short-term losses. Do not invest more than you can afford to lose.
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