Bitcoin finished the previous five months of September with losses. Historically, this month has been mostly unproductive for BTC. As BTC bulls enter their riskiest month in the coming days, they should not be excited yet about the rebound from June’s low of $17,500.
Why is September potentially unproductive for Bitcoin price?
Historical data shows that September was Bitcoin’s worst month between 2013 and 2021, excluding 2015 and 2016. At the same time, the average Bitcoin price drop for the month is a modest -6%.
Interestingly, Bitcoin’s poor track record in previous September coincides with similar declines in the stock market. For example, the average fall of the US benchmark S&P 500 in September was 0.7% over the last 25 years.
Traditional chart analysts call this annual drop the “September effect.”
Analysts argue that investors exit their market positions after returning from the summer holidays in September to stabilize their earnings and even tax losses before the end of the year. Meanwhile, they also note that individual investors liquidated their assets in September to pay for their children’s annual school fees.
Bitcoin’s correlation with the stock market has been largely positive during and after the coronavirus pandemic. So, in addition to the September effect, these mirroring price trends could also increase the likelihood of BTC falling high in the unlucky month.
My very 1st blown up account was in September. Low volume and a ton of liquidation. If you do not play defense, the shadow realms has a nice warm seat for you. September is the close of a lot of companies fiscal year and profit taking from "summer rallies".
— Seven V. Matos 🚀 (@Sevenvmx) August 22, 2022
Fed looks to 75 basis point rate hike
Bitcoin’s losses in 2022 stemmed from fears of Fed rate hikes. However, the market’s narrative has shifted to hopes that inflation has peaked. The belief, strengthened by the US consumer price index (CPI) falling to 8.5% in July, compared to 9.1% in the previous month, led to speculation that the Fed will soften its tightening plans.
It coincided with Bitcoin and the S&P 500 recouping small portions of their annual losses, as shown below.
However, a few analysts believe that Bitcoin’s recovery could be a bull trap, a “relaxation rally”. According to Lark Davis, it will “entrap investors who think the market has bottomed out”.
The psychology of a relief rally 👇
Price gets just bullish enough to fool you that this rally is the real deal. 😀
There could be an end to the pain. 🙏
Then BLAMO, the market rugs you shattering your hopes. 👿😆
Expect this a few more times during the bear!#bitcoin #crypto
— Lark Davis (@TheCryptoLark) August 22, 2022
Also, most Fed officials are still in favor of a 75 basis point increase at its next meeting in September, given the promise to cut inflation to 2%. As a result, Bitcoin and the S&P 500 risk continuing their dominant correction trend, looking at more yearly lows in September.
Bitcoin techniques imply it dropped to $17.6k
Technically speaking, if Bitcoin exits the current “bear flag” formation, it will drop to $19,250 by September. The bearish continuation setup is shown on the four-hour chart below.
Meanwhile, on the daily chart, BTC is breaking out of the ascending wedge pattern since Aug.
Overall, September looks like it could be another red month for Bitcoin based on technical, fundamental and macro factors.
