Why September looks set to be a potentially ugly month for the Bitcoin price
Bitcoin (BTC) bulls should not get excited about the recovery from the June lows of $17,500 just yet, as BTC enters its riskiest month in the coming days.
The psychology behind the “September effect”
Historical data shows that September is Bitcoin’s worst month between 2013 and 2021, except in 2015 and 2016. At the same time, the average Bitcoin price decline in the month is a modest -6%.
Interestingly, Bitcoin’s poor track record over the previous months of September coincides with similar declines in the stock market. For example, the average decline for the US benchmark S&P 500 in September is 0.7% over the past 25 years.
Traditional chart analysts have dubbed this annual drop-off the “September Effect.”
Analysts say investors are exiting their market positions after returning from the summer holidays in September to lock in gains, or even tax losses, before the end of the year.
Meanwhile, they also note that individual investors are liquidating their assets in September to pay for their children’s annual school costs.
Bitcoin’s correlation with the stock market has been mostly positive during and after the coronavirus pandemic. Therefore, in addition to the September effect, these mirroring price trends could also increase BTC’s likelihood of falling high in the ominous month.
So expect low volume, stuttering and random violent movements in both directions. The point of this post is not to fear anyone. Always a green market somewhere. I share insights on what to expect to save new retail traders from excruciating pain. Be patient and embrace the urge
— Seven V. Matos (@Sevenvmx) 22 August 2022
Fed eyes 75bps rate hike
Bitcoin’s losses in 2022 were derived from fears of Federal Reserve interest rate hikes and the complete unwinding of its $120 billion monthly bond buying plan to tackle rising inflation.
But the market’s narrative shifted to hope that inflation had peaked. Faith strengthened after the US consumer price index (CPI) came in at 8.5% in July against 9.1% in the previous month, leading to speculation that the Fed would tone down its tightening plans.
That coincided with Bitcoin and the S&P 500 recouping small portions of their annual losses, as illustrated below.
But several analysts believe Bitcoin’s recovery could be a bull trap, a “relief rally“It will trap investors who think the market has bottomed out.
The psychology of an emergency meeting
Price is getting just bullish enough to trick you into thinking this rally is the real deal.
It can end the pain.
So BLAMO, the market rugs you crush your hopes.
Expect this a few more times during the bear!#bitcoin #crypto
— Lark Davis (@TheCryptoLark) 22 August 2022
Also, most Fed officials still favor a 75 basis point hike at their next meeting in September, given their pledge to get inflation down to 2%.
Related: Wen moon? Probably Not Soon: Why Bitcoin Traders Should Be Friends with the Trend
As a result, Bitcoin and the S&P 500 risk continuing their prevailing corrective trend in September, eyeing multiple yearly lows.
Bitcoin Technicals Hint at a Fall to $17.6K
From a technical perspective, Bitcoin will decline towards $19,250 by September if it breaks out of its current “bear flag” pattern. The bearish continuation setup is illustrated in the four-hour chart below.
Meanwhile, on the daily chart, BTC has broken down from its rising wedge pattern since August 19. The bearish reversal setup profit target is going to be near $17,600, as illustrated in the chart below.
Overall, September looks like it could be another red month for Bitcoin based on technical, fundamental and macro factors.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
