Why I am buying Bitcoin in October

One of Bitcoin‘s (BTC 0.63%) historically worst performing months just came to an end. Since the inception of the cryptocurrency, the beginning of September has typically meant that Bitcoin is due for a decline – and this September was no different. During the month, the world’s most valuable cryptocurrency fell around 3%. Surprisingly, this was actually the best September Bitcoin has had since 2016.

While Bitcoin usually cools down as fall approaches, it doesn’t seem to care that the colder weather is ahead, as October, November and December tend to be some of the best performing months.

Over the course of Bitcoin’s existence, October has seen an increase of nearly 27%, and Bitcoin has seen a decline in only three of the last 10 years. These figures make October the third month with the best results. Even better, November is the best month for Bitcoin, with an average increase of almost 40%.

If I may speculate a little, it seems that past patterns will repeat themselves. Bitcoin’s fall during 2022 is primarily due to an increasingly unfavorable economic environment surrounding risk assets. As the Federal Reserve raises interest rates to fight inflation, investors everywhere are taking their money and putting it into safer assets.

The last rate hike was in September, with an increase of 0.75% – the third increase of that size this year. It would be safe to assume that until inflation is under control and the Fed stops raising interest rates, any asset like Bitcoin or a tech stock will see no price gains.

Bitcoin, inflation and interest rates

It has taken a while (nearly 10 months and four rounds of rate hikes), but there are encouraging signs that the Fed’s approach to fighting inflation by raising interest rates is having the desired effect. When interest rates rise, the economy cools, consumers spend less, businesses borrow less, the housing market typically slows, and inflation eventually slows.

Based on a few factors, there is speculation that the Fed may pivot from monetary tightening — and that means assets like Bitcoin could become more attractive.

Speaking in Phoenix this week, New York Federal Reserve President John Williams delivered some much-needed news on supply chain issues and inflation. It is his belief that due to current strategies, inflation should come down to around 3% by next year. It is not the 2 percent the Fed is aiming for, but it will still represent significant progress, considering that inflation is around 8 percent today.

The fight against inflation is a bit of a balancing act. If the Fed raises interest rates too much, a recession can occur. If interest rates are not raised enough, inflation will not be contained. Based on how the market reacts to previous interest rate hikes, it appears that central banks are now entertaining the possibility of lowering interest rates or not raising them as much as investors expect.

Australia’s central bank has already followed this course. In a surprise move last week, the bank raised interest rates by just 0.25%, a far cry from the past six hikes of 0.5% each. It did not rule out further increases, but in a period where interest rates have been raised every few months, a reduction in the size of the increase is welcome news.

Bitcoin’s best days may be ahead of us

There’s no other way to put it: It’s been a brutal 2022. Since its peaks back in November 2021, Bitcoin is down more than 70%. But if there really is some light at the end of the inflation tunnel, we should expect riskier assets like Bitcoin to finally find some sort of respite.

At the bottom is of course where there is most to be found. Investors shouldn’t make long-term decisions based on short-term events, but October could shape up like most other Octobers in Bitcoin’s history. Entry at today’s prices seems like it could minimize risk and provide the most potential upside, especially if the Fed begins to change its approach.