Ecoinometrics - Is there a seasonality effect on Bitcoin’s returns?
What does the data says about when to buy and when to sell during the year.
The Bitcoin network doesn’t care whether it is summer or winter. It just chugs along one block at a time. But Bitcoin’s value is something totally different.
The Bitcoin price is a consensus that emerges from the trading activity. So it is totally possible that this process is affected by seasonality. After all the calendar year does play a big role in everything we do.
Let’s try to figure out whether or not Bitcoin price is affected by the yearly cycle.
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Is there a seasonality effect on Bitcoin’s returns?
Today we are trying to answer a question from a subscriber:
“What is the best time of the year to buy (or sell) Bitcoin?”
Or said differently, does the calendar have an effect on Bitcoin’s returns?
Before we look at the data it is worth considering why there could be a seasonality or calendar month effect on Bitcoin’s returns.
Off the top of my head the two most powerful sources of potential seasonal effects are:
Tax seasons for retail investors.
The standard periods of performance reports for institutional investors.
Professional money managers typically report their performance on three time scales: monthly, quarterly and yearly. So you might expect that they are incentivize to act so as to make their performance look good: at the end of every month, at the end of every quarter and at the end of every year.
End of the month is below what you can call seasonality. But quarters and calendar years definitely fit. It will be interesting to see if that’s reflected in the data in some way.
Retail investors don’t report their trading performance to anybody so you wouldn’t expect that they are as affected by the calendar. But wait. They do report to someone. And that someone is called the IRS. So indeed you’d expect that if there is one strong calendar effect affecting retail it would be tax seasons. Although when it comes to crypto I’m not sure how many people file their taxes properly…
There are probably other reasons why you expect to see calendar effects in the price action. But I think these two are pretty compelling as they are incentive driven.
That being said these effects could be there but be totally negligible compared to other market forces. Which is why we need to look at the data.
A good starting point is to look at the distribution of monthly returns.
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