The Impact of Seasonal Trends on Crypto Prices (part 1)

What Are Seasonal Trends?

Seasonal trends are patterns or behaviours that happen at specific times of the year due to predictable events, market activities, or human habits.?

With cryptocurrencies, these trends often arise from factors like holiday spending, tax deadlines, or major annual events in the crypto world.?

For example, Bitcoin has historically seen a price boost in December, sometimes called the "Santa rally," due to increased buying around the holidays.?

On the other hand, some months, like September, are known for market dips.?

These patterns are not unique to crypto alone. Similar trends are seen in traditional financial markets, like higher retail sales during the festive season.?

How Seasonal Trends Affect Crypto Prices

1. Seasonal Inflows of Capital:

At the beginning of the year, many investors inject fresh capital into financial markets, including cryptocurrencies.?

This phenomenon, often called the “January Effect,” is driven by people starting the year with new financial goals, extra savings, or fresh bonuses.?

Increased demand for assets like Bitcoin or Ethereum during this period can push prices higher.?

2. Tax Season Effects:

Tax deadlines, especially in countries like the United States (where taxes are due in April), create a different kind of market movement.?

Investors may sell off some of their crypto holdings to generate cash to pay taxes.?

This selling pressure can temporarily lower crypto prices.?

3. Holiday Spending and Crypto Use:

Festive periods, such as Christmas and New Year, bring mixed impacts to the crypto market.?

Some people sell cryptocurrencies to cover holiday expenses, such as buying gifts or funding vacations.?

Others, however, use their year-end bonuses to buy digital assets, hoping for future gains.?

These contrasting behaviours can stabilise or create unpredictable fluctuations in crypto prices.?

Key Seasonal Trends to Watch in Crypto Markets

1. January Effect:

The “January Effect” is a trend where cryptocurrencies often see a price increase at the start of the year.?

This happens because many investors start the new year with fresh capital, optimistic investment plans, and rebalanced portfolios.?

We know that Bitcoin has been getting a lot of attention this year, but this isn’t limited to Bitcoin; other cryptocurrencies like Ethereum have also experienced similar trends in January.?

While this pattern isn’t guaranteed every year, it’s worth keeping an eye on how the market behaves at the beginning of the year.

2. Summer Lull:

During the summer months (June, July, August), trading volumes in the crypto market often decline.?

This period, known as the “Summer Lull,” happens because many investors take vacations, leading to reduced market activity.?

Lower trading volumes can cause prices to stagnate or even drop slightly because there’s less demand and liquidity in the market.?

If you’re trading or investing in crypto, this is a time to be cautious, as the market may be slower than usual.

3. End-of-Year Rally:

The end of the year can bring a significant rally in cryptocurrency prices, often referred to as the “End-of-Year Rally.”?

This is driven by factors such as holiday spending, investor optimism, and strategic investments made to manage tax liabilities before the year closes.?

While not a certainty, this trend often creates opportunities for traders to capitalise on rising prices as the year wraps up.

Fun Facts on Seasonal Trends in Crypto

• Bitcoin prices have increased in 7 out of the 10 January months since 2013.
• During summer months, trading volumes tend to decline by 5-10%.?
• In December 2017 and 2020, Bitcoin hit its all-time highs, with prices rallying significantly during the festive period.?
• A common saying in crypto trading is "Sell in May and go away." Prices often dip or remain stagnant during mid-year months.
• September and October have occasionally sparked mini bull runs.
• In April, the U.S. tax deadline often sees higher sell-offs as investors cash out profits to cover their tax liabilities.?
• Bitcoin halving years often see prices gaining momentum in the months following the halving event, typically in summer or autumn.