Bitcoin faces uncertain September despite Grayscale victory, say analysts

Quick Take

  • Bitcoin has an historical tendency for a poor performance in September.
  • Analysts outline the vulnerabilities facing the digital asset as it approaches the new month.

Grayscale's recent victory in its ETF case is unlikely to prevent bitcoin from closing August with a negative monthly return. The digital asset began the month above $29,000, but now hovers above the $27,000 level.

The digital asset's performance in August casts uncertainty over what September will bring. August was marked by record low volatility, declining trade volume, and a flash crash that sent the BTC price into $25,000 territory. According to CoinShares head of research James Butterfill, August's price decline "has underscored bitcoin's vulnerability from larger trades, exacerbated by current low volumes."

Butterfill predicts market indecision will characterize the beginning of September. He expects traders to waver between excitement over ETF possibilities and doubts over SEC approval. Despite Wednesday's court ruling favoring Grayscale, Butterfill told The Block, "It is unlikely to accelerate the timetable for an SEC approval as there is still the potential for an appeal."

Dollar strength weighs in on risk assets

In a recent note, Butterfill questioned whether market conditions in September would be able to defend bitcoin at its current value. Pivotal to his assessment is "a rising DXY that has affected risk assets at large."

The dollar was recently strengthened after more hawkish nuances from the Federal Reserve last Friday. A strengthening U.S. dollar index diminishes the risk-adjusted return associated with bitcoin, making the digital asset less palatable.

Butterfill also pointed to bitcoin trade volumes being lower than this time last year as a negative sign. "This is more than just the seasonal impact," he added. According to the researcher, bitcoin trade volume last summer averaged $7.5 billion per day, compared to $4 billion this summer.

Butterfill explained that several factors have coalesced to result in the digital asset's current inactivity. On-chain data shows investors are in a holding pattern, awaiting the SEC's decision on approving a spot-based ETF in the U.S. He emphasized that recent regulatory crackdowns have had an impact on U.S. exchange volumes. He also pointed out the Binance fee holiday "that began in March 2022 ended in March 2023, resulting in sharp volume declines."

September brings market uncertainties

Historically, September has been a poorly performing month for bitcoin. Krown Trading's Eric Crown noted in an post on X (formerly Twitter) that "nine of the total 13 prior Septembers have had negative returns open to close and an average loss return of -12.80%." Therefore, investors remain wary of additional downside pressure.

One analyst sees trade volume and volatility picking up in September. "We don't expect the volatility in September to be as low as August," Sergei Gorev, risk manager at YouHodler, told The Block. He added that traders will be liquidating more positions in light of the U.S. fiscal year ending next month.

"The fact of fixing profits in general portfolios may affect the sale of cryptocurrencies in particular in September, this can cause negative dynamics in the crypto market," Gorev added.

James Butterfill underscored September as a time for "fund managers to allocate when back from holiday, and hawkish rhetoric has likely impacted their investment decisions." However, Butterfill has a more positive forecast for bitcoin in October and November. "My suspicion is that central banks are likely to begin pivoting soon as macro data deteriorates. This would be more supportive of Bitcoin. Timing is tricky though, and we may have to wait for October and November for this scenario to play out."

Bitcoin increased by over 5% in the past 24 hours to $27,400 at 2:35 p.m. ET, according to CoinGecko.

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