As August winds down, Bitcoin's price is stuck in a holding pattern. The crypto community, however, isn’t sitting back with a cocktail in hand. Instead, they're preparing for the infamous "Red September," a market slump that's haunted both traditional and crypto markets for nearly a century.
Since 1928, the S&P 500 has averaged negative returns in September, and Bitcoin? Well, its track record is even worse, dropping an average of 3.77% every September since 2013. It's like clockwork; Bitcoin has crashed a total of eight times during this month, according to Coinglass data.
Why September is a Rollercoaster for Bitcoin and Stocks
Yuri Berg, consultant at FinchTrade, calls "Red September" a monthly psychological experiment. The pattern? Around August 25, negative chatter swells on social media, followed by a surge in Bitcoin deposits to exchanges within a few days. It’s as if traders have rehearsed their panic response year after year.
But it's not just superstition. The mechanics of September are well understood, and it's mostly about behavior. Mutual funds close their fiscal years in September, sparking tax-loss harvesting and portfolio rebalancing, which floods the markets with sell orders. Traders, fresh off their summer vacations, return to their desks with fresh eyes, often reassessing positions after months of low liquidity. Oh, and bond issuances surge post-Labor Day, pulling capital away from riskier assets like Bitcoin into safer fixed income.
To top it off, the Federal Open Market Committee (FOMC) holds its September meeting, bringing added uncertainty. With Bitcoin's 24/7 trading, there are no circuit breakers to stop the selling once it starts. A smaller market cap makes it more susceptible to whale movements that could send prices into a tailspin.
Bitcoin’s Swoon Could Spill Over From Traditional Markets
The "Red September" cascade usually starts in traditional markets and spills into crypto within days. When the S&P 500 drops, institutional investors often offload Bitcoin first to meet margin calls or reduce portfolio risk. Then, futures markets amplify the carnage, as a mere 5% drop in spot Bitcoin can trigger a 20% wipeout in derivatives. Traders, spooked by the expected losses, preemptively sell, and options dealers hedge their exposure by dumping Bitcoin. It’s all mechanical pressure, regardless of what’s happening with the fundamentals.
But wait, could the curse be weakening? The Crypto Fear and Greed Index recently dropped from 74 to 45, while traditional markets seem more optimistic. However, the sentiment still leans towards fear in crypto.
Unpredictable Geopolitics and Fed Action Add Fuel to the Fire
This September comes with a twist. The Federal Reserve is sounding more optimistic, with market expectations of another rate cut at the September 18 FOMC meeting. But core inflation is still sticky at 3.1%, and two active wars are causing major disruptions to global supply chains. According to Daniel Keller, CEO of InFlux Technologies, Bitcoin could be positioned for a steep decline given these global conditions, which have the markets seeing Bitcoin more as a risk asset rather than the pre-COVID "hedge" it was once touted as.
Technically speaking, Bitcoin is already showing signs of weakness. It broke below the critical $110,000 support level that had held the rally since May. The 50-day moving average is now acting as resistance at $114,000, and the 200-day EMA provides support near $103K. Traders are eyeing $105,000 as a key threshold, and a break below could lead to prices dipping below $100K.
Bitcoin's Fundamentals Are Stronger Than Ever
Despite all the doom and gloom, some analysts believe Bitcoin’s fundamentals are stronger than ever and that it won’t crash as badly this year. Ben Kurland, CEO of DYOR, argues that the whole "Red September" myth is outdated. He points to Bitcoin’s growing liquidity, institutional adoption, and the deeper-than-ever institutional inflows as reasons why Bitcoin might not follow its typical pattern.
Kurland suggests the current macroeconomic environment, sticky inflation, rising core readings, and the pressure on the Fed to ease, could actually be a tailwind for Bitcoin, even if the market is feeling jittery. He’s also optimistic about institutional support, with ETFs and corporate treasuries providing added stability.
The Seasonal Pattern May Be Losing Its Power
But could "Red September" be fading into the past? Bitcoin’s losses in September have shrunk in recent years, from an average of -6% in the 2010s to a smaller -2.55% over the past five years. Institutional adoption and growing corporate involvement in Bitcoin seem to be making a difference. In fact, Bitcoin even managed positive gains in September over the past two years.
Yuri Berg agrees with this shift, arguing that "Red September" is self-reinforcing. After years of sell-offs in September, the crypto community has learned to expect the worst. This has created a cycle where the fear of a dip actually becomes the dip itself.
Uptober Could Be Just Around the Corner
So, what’s next? If you’re feeling nervous about Bitcoin’s performance this month, don’t fret too much. After September comes October or “Uptober,” as it’s affectionately called in the crypto world. Historically, October has been Bitcoin’s best month of the year. So, if Bitcoin survives the storm this September, the rally might just be waiting around the corner.
Kristian Koch
Disclaimer: All materials on this site are for informational purposes only. None of the material should be interpreted as investment advice. Please note that despite the nature of much of the material created and hosted on this website, HODL FM is not a financial reference resource, and the opinions of authors and other contributors are their own and should not be taken as financial advice. If you require advice. HODL FM strongly recommends contacting a qualified industry professional.
