The Seasonality of Crypto-asset Returns

Tick, tock, next block. Bitcoin works like clockwork, as they say. Approximately every 10 minutes, a new block of transactions is timestamped into the public ledger.

Obviously, time plays an important role in the Bitcoin protocol. What about seasons?

Traditional financial research provides sufficient evidence of seasonality in equity returns. You’ve probably come across terms like the “January Effect” or “Return Tuesday.”

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Statistically significant seasonal performance patterns can be observed in almost any time period: Quarterly, monthly, weekly, daily, hourly, etc.

The phrase “sell in May and go away” has already been around since the nineteenth century, as the summer months have historically shown significant weakness in equity returns compared to other months of the year.

A look at Bitcoin’s average monthly returns reveals that the summer months between June and September also show significantly below-average returns.

Why should we care about this?

Well, if you only held cash during August and September (while you were on vacation) and only invested in Bitcoin the rest of the year, you would outperform a Bitcoin buy-and-hold investor by four times!

Therefore, statistically significant seasonal performance patterns can be used to obtain theoretically significant alpha.

Moreover, the average seasonal performance pattern suggests that Bitcoin could continue to rise in the coming weeks into June, while the average seasonal performance pattern suggests that Bitcoin could take a pause in the summer months before resuming its rise towards the end of the year. .

However, as noted above, seasonal performance patterns can be observed in almost any time period.

In this context, while Bitcoin appeared to perform best at the beginning of the week (Monday – Wednesday), towards the end of the week and especially on weekends, its performance was historically below average.

Similar patterns can be observed during different trading hours: performance during Asian trading hours (12:00 UTC – 06:00 UTC) was mostly below average, while performance during European (08:00 UTC – 16:30 UTC) and America (14:30) was mostly below average . UTC – 21:00 UTC) trading hours generally show historically above-average performances. However, towards the end of the American trading session (21:00 UTC), Bitcoin returns were the worst historically.

The story continues

Similar intraday performance patterns can also be observed in the traditional foreign exchange market, where most trading volumes occur during the intersection between European and American trading hours (between 14:30 UTC and 16:30 UTC).

Bitcoin is traded worldwide 24/7/365, but fluctuations in price are ultimately a product of human action. Therefore, it is no surprise that the “sell in May and go” approach also applies to Bitcoin’s return profile.

While Bitcoin continues to run like clockwork, its performance is ultimately determined by when we are awake or asleep, when we start working, and when most of us are on vacation or not working.

Tick, tock, next block.

This is not an investment advice.