Crypto by the calendar: Do ‘Crypto Seasons’ really exist?
[Disclaimer: This article is intended for US audiences]
Changing leaves, special sales, and emerging holiday decor at certain times of the year bring about a certain predictable energy to the world, including the world of finance. And that may actually include the always-volatile crypto market. Although no pattern guarantees profit, some traders look at historical crypto prices during certain months or even quarters for possible clues to how the overall market feels.
Learning about this concept, what’s often called the “crypto calendar effect,” won’t make you suddenly rich. It can’t even guarantee you certain results. But it can be another useful part of a trader’s toolbox.
What Exactly is the “Calendar Effect?”
The Calendar Effect is, simply put, an acknowledgment that a price anomaly or trend reliably happens at the same time each year, month, or even week. They are patterns that are often concurrent with human psychology, institutional trading habits, or certain deadlines like tax season.
In traditional stock markets, people talk about the “January Effect”: stocks, especially smaller ones, tend to do well at the start of the year. They also acknowledge that there is often strong performance in the final months of the year (Q4). But now, analysts are asking the question: Do Bitcoin and Ethereum follow a similar pattern? Or do the unique forces of digital assets create their own rhythm that’s independent from everything else?
What the Past Five Years Say
Looking back at the history of major cryptocurrencies suggests that certain times of the year play out stronger than others. Over the past five years, Bitcoin and Ethereum have often performed well in the first quarter or Q1 (January-March) and the fourth quarter or Q4 (October-December).
It’s important to note some outside influences. Q1 strength might be a reflection of new money entering the market at the start of the year, mirroring the traditional January Effect of fiat money, and Q4 strength is often linked to an end-of-the-year momentum and the general optimism of many around the holidays.
By contrast, the second quarter (Q2), especially late spring and early summer, has sometimes been weaker, which causes some traders to be more cautious during that time. And in traditional finance, Q3 (July-September) is often viewed similarly to Q2 or the weaker, “summer doldrums” period.
Often, there are lower trading volumes and a more subdued performance during these times. However, in crypto, Q3 performance has been historically mixed. While the Q2-to-Q3 transition can sometimes continue the Q2 trend of caution, crypto data over the last five years suggests that Q3 is typically neither the strongest nor the weakest quarter and often falls into a more flexible and subdued mid-year period.
The Role of Taxes and Portfolio Adjustments
Deadlines, especially tax deadlines in major countries like the US and UK, subtly push market flow around. And toward the end of the year, traders often try to manage their gains and losses, which can lead to “tax-loss harvesting,” where assets are sold in Q4 to offset profits elsewhere, which can then temporarily put downward pressure on prices.
Then, as the new year begins, traders often buy back into positions in Q1, which helps to fuel the early-year price strength. This annual cycle of selling to offset taxes and then repositioning can create a patterned year-end and early-year price dynamic.
Market Mood Among Holiday Cheer
But none of this is strictly about finance. General human behavior around the holidays can create patterns that are useful to follow. Internationally recognized events like Black Friday, Christmas, New Year’s, and Chinese New Year’s will often set off trading activity. These specific events bring media attention to themselves and cryptocurrencies, and they often come coupled with special promotions from major exchanges.
NFTPlazas recently reported: “Since 2014, total cryptocurrency market capitalization has increased 9 out of 11 times during the post-Christmas period (December 27 to January 2), achieving an impressive 82% profitability rate.” The combination of increased public awareness, seasonal excitement, and easy access to trading can help boost the trading volume and, sometimes, sustained price appreciation by a more positive market sentiment.
How Traders Can Use this Information
Traders will, of course, not rely only on seasonal data. But they will use it as an extra layer of confidence on top of other technical analysis or their own, personal long-term strategies. For example, if a trader finds a strong indication that buying Bitcoin or other cryptos is smart at that time because of the historical pattern of Q4 strength, it might give them more confidence in their timing of new investments or encourage them to branch out into new types of crypto. On the other hand, historical weakness during Q2 might lead them to pull back and be more patient.
Caveat: It’s important to note that smart traders should test this historical data thoroughly before they make any move. They should make sure the patterns are consistent across many years and assets, and not the result of just random coincidences.
Bringing Skepticism to the Game
Through all of this, it’s important to be wary of the “crypto calendar effect.” While history offers insight, the crypto market is still young by fiat standards, and its prices are fundamentally driven by mostly unpredictable news such as sudden technological breakthroughs, new regulations, a foreign conflict, or a major hack.
What this means is that the extreme volatility and event-driven nature of cryptocurrencies are often more affected by outside pressures and unexpected news than by any seasonal pattern. For any investor, historical performance is only a potential guide and not a promise. The most reliable characteristic of the crypto market is its capacity to surprise everyone, and there is no calendar or trick that can harness those risks.
Written by: K.H. Koehler
ADVT.
This article is brought to you by Ascend Agency.
