A Guide To Crypto Seasonality

"Sell in May and go away." "The Halloween Effect." "Santa Rally." These well-worn phrases from the world of TradFi hint at some of the seasonal trading patterns found in the stock markets—and the crypto world is no different.

What Is Seasonality?

"Seasonality" in the stock market refers to recurring patterns or tendencies that occur at specific times of the year.

Seasonality does not predict how the market will perform at different points in any given year, but it can provide insights into potential trends, because the observed patterns are based on long-term historical data and have broadly held true over many decades. Examples of seasonality in the stock market include:

1. "Sell in May and go away": This is a well-known seasonal pattern where the stock market tends to underperform or experience lower returns during the summer months, particularly from May to October. Some investors may choose to reduce their exposure to stocks during this period and re-enter the market in November (after Halloween, hence the "Halloween Effect").
2. "January Effect": This phenomenon suggests that stocks tend to perform relatively well in the month of January. It is often attributed to year-end tax strategies, portfolio rebalancing, and renewed investor optimism at the start of the year.
3. "Santa Rally": The stock market has historically exhibited a tendency to perform well during the Christmas holiday season. This may be attributed to positive market sentiment, increased consumer spending, and optimism about the upcoming year.
4. Quarterly Earnings Season: Companies typically release their financial results on a quarterly basis. Stock prices can be influenced by the performance and guidance provided by companies around these times. Volatility and increased trading activity are often observed during this period.
5. Sector-Specific Seasonality: Some sectors may exhibit seasonal trends based on factors such as weather patterns, holidays, or industry-specific events. For example, retail stocks may experience higher demand and sales during the holiday shopping season.

Bitcoin Seasonality

Over the course of its 14-year existence, Bitcoin has posted strong average returns, but these have been quite "lumpy", with heavy drawdowns in bear market years.

Breaking it down further, there are certain months where Bitcoin, on average, posts a particularly strong return. April (39%), October (30%), and November (40%) have historically outperformed, while August and September have seen slight losses.

Looking at an even more granular picture, there are months that have historically experienced very few negative returns (February, October), and months that have seen very few positive returns (March, September). A small number of very strong returns might offset otherwise consistent losses, and vice versa.

Alts Season

Occasionally, altcoins outperform against bitcoin—that is, not only does their USD value increase, but so does their BTC value. This is known as "Alts Season", and typically happens after a rally in bitcoin, when traders roll profits into altcoins they perceive as undervalued. Bitcoin Dominance necessarily decreases as money flows into alts.

Alts Season does not happen at a specific point in the year, as with other seasonal patterns, though may be more likely to occur after a season in which BTC has performed strongly.

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