"Uptober" Begins, But Will It Prove As Unusual As September?

October is off to a strong start, but there are reasons for caution as macro headwinds remain.

Seasonality plays an important role in the crypto markets

Sunday marked the beginning of October, and the start of a new quarter. Bitcoin ended September, generally a bearish month, in the green: Up from $25,900 at the open on September 1 to a close just below $27,000 at the end of September 30. It was Bitcoin's first positive September since 2016.

Off To A Strong Start

October began in style. Over the weekend, US lawmakers reached an eleventh-hour deal to avert a shutdown (for 45 days, at least). This, or perhaps simply the anticipation of a month that is traditionally more bullish, may have been the catalyst that drove BTC up above $28,000 in a matter of minutes. Bitcoin put in a local top at $28,600, heavily overbought on the 4h but still with room to go on the daily.

Other factors may have included the launch of the first ETH futures ETFs, somewhat renewed optimism about a forthcoming spot BTC ETF, or perhaps sellers just running out of steam.

Reasons To Be Bearish

Despite the positive start to the month, there are lots of reasons to be cautious. Macro headwinds remain strong.

The DXY, a measure of dollar strength, just passed a year-to-date high of 107. The last time it was that high was November 2022, at the start of the long series of interest rate rises. High interest rates push money into the dollar, because traders know they can get a good return without risk. The renewed recognition that interest rates will remain high for some time has boosted USD strength once more.

Bonds yields, too, are soaring. Yields on 10-year US Treasuries have hit 4.7%, their highest since 2007. When interest rates are high, the price of bonds trading on the secondary market falls as traders sell them to park funds in bank deposits and money market funds. This drives up bond yields, since the monthly payments from the bonds remain the same.

As an aside, this has implications for the holders of those bonds. Banks that have large quantities of these long-duration bonds in their portfolios have suffered significant losses, on paper. If they are forced to sell (for example, to fund customer withdrawals), then those losses will be crystallized.

All of this is a headwind to BTC because when there are safer ways to achieve a return, money moves from riskier assets (like stocks and crypto) into bonds and deposit accounts.

What To Expect For Q4

While August and September are, on average, bearish months, October and November have historically seen strong returns for bitcoin. Seasonality plays an important role in the crypto markets.

Glassnode chart of monthly bitcoin returns

However, a note of caution is required. The market is outstanding when it comes to confounding expectations. Traders as a whole expected a bearish September, and were wrong. Now they are expecting a bullish October. Will the majority be right this time?

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