September Outlook: Wake up before September ends
Seasonality and rising recession fears sets the stage for a challenging month. Beyond the short term, market fundamentals are solid, and several factors point towards a positive tidal change, making September a ripe opportunity to enter with aggression. If you push a beach ball underwater, the buoyant force pushes back with the weight of the water that the beach ball has shoved out of the way once your hands are released. The past five months have offered market participants plenty of time to sell and plenty of reasons to sell. From nation-states and bankruptcy estates, unique selling pressure to the tune of 190,000 BTC has hit the market, changing the regime from strong to stagnant. With time, stagnation has obliterated sentiment and pulled the market into a feeble state, pushing funding rates into negatives as short bias gradually becomes the consensus view. While derivatives price in despair, 200-day moving averages sit at all-time highs, and bitcoin trades at levels only briefly visited during the all-euphoric days of 2021. Market fundamentals are solid, and several factors point towards a positive tidal change, making September a ripe opportunity to enter with aggression.
Eight factors favor stronger times ahead
1. Idiosyncratic selling largely doneBankruptcy estates have distributed their assets (the remaining 45k BTC Gox payout is not expected in 2024), and governments have sold off sizeable chunks of their holdings. While selling from the U.S. and U.K. governments may arise anytime, the worst supply overhang is done and dusted, with BTC robustly handling the supply shock by ranging. 2. Monetary policy pivotRate cuts are coming as the Fed has pivoted from inflation to employment. Past rate cut cycles have generally been accommodative for asset appreciation—as long as they have not been driven by recessions. A successful soft landing and easing monetary policy may recover the markets’ push toward sound scarce assets, a solid tailwind for BTC.If we enter a recession, the outlook is more challenging. Bitcoin’s attributes are not connected to impulses in the U.S. labor market, apart from potential softening demand from U.S. households. However, a recession would likely trigger selling pressure across asset classes, pulling BTC down in a relatively short-lived correlated window. From there, strong secular tailwinds are due, with aggressive rate cuts acting expansionary, attracting more eyes to scarcity. Avoid leverage to avoid getting chopped out in a liquidity flush as recession odds are relatively high, but stay aggressively exposed in spot positions, as accommodative policy responses favor Bitcoin. 3. Delayed halving effectPast halving cycles have seen momentum pick up approximately 150 days after the halving. If history repeats, halving-related tailwinds should erupt from mid-September to mid-October and onwards. While the impact of the halving diminishes with each cycle, a yearly net sell-side reduction of 164,250 BTC is due to be felt in the market.4. SeasonalityHistorical performance favors exposure in BTC from October through April. Buying blood in September to build exposure for Q4 has historically been the best spot strategy. 5. 5 months of rangingMarket participants have been granted five months of opportunities to sell at current prices. That’s a lot of time. Supply has changed hands to long-term holders, and sell-side exhaustion shows signs of nearing (next point). 6. Sentiment very negativeWe’re in the deepest funding rate environment since BTC’s 80% drawdown in November 2022. Hedges or direct short-biased bets are crowded, a solid indicator of nearing sell-side exhaustion. 7. ElectionThe election is due to move attention to crypto following Trump’s courting of the industry. Momentum may arise in the months leading into the election. A Trump victory would likely be met with a bullish response, whereas a Harris victory would be viewed as a status quo for the industry in the U.S.8. FTX funds re-entering cryptoFTX’s bankruptcy estate will eventually distribute ~$14.5bn in dollars to creditors and customers. In all likelihood, a non-negligible portion of these funds is due to return into crypto, a potent elevated demand factor, with a still unclear timeline.
