The Breakdown - For Bitcoin, Is It "Sell in May and Go Away"?

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, May 5th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, it is the first long read Sunday in the month of May, and so I thought it only appropriate to review that old adage, sell in May and go away.

Starting point is 00:00:47 Luckily, Andre Dragosh, the head of research at ETC Group, decided to write an op-ed exploring exactly that theme. It's called Sell and May and Go Away, the seasonality of crypto asset returns. Let's read it and then we will do a bit of a discussion. Andre writes, TikTok Next Block. Bitcoin works like Clockwork as they say. Approximately every 10 minutes, a new block of transactions is time stamped into the public ledger. Obviously, time plays an important role in Bitcoin's protocol, but what about the seasons? Traditional financial research provides ample evidence for seasonality and equity returns. You've probably come across terms like the January effect or turnaround Tuesday.

Starting point is 00:01:24 Seasonal performance patterns that are statistically significant can be observed on almost any time frame, quarterly, monthly, weekly, daily, hourly, and so on. The saying, sell in May and go way has already been around since the 19th century, as the summer months tend to have shown a remarkable weakness in equity returns historically compared to other months of the year. A look at Bitcoin's average monthly returns reveals that the summer months between June and September have shown significantly lower below average returns. Now, editors note back to NLW, there is at this point a chart which is actually very important. It shows monthly average returns are around 15%, with a chart showing what each month's average performance is. The end of the year is very strong. October has 29.

Starting point is 00:02:03 9.5% average returns. November in the lead has 37.9% average returns, and December has 12.3% average returns, slightly below the overall average, but not that far off. The first quarter of the year is a little bit more depressed. January at 10.5%, February, just above the average at 16.9%. Then April and May are bangers. April has a 35.6% average monthly performance, and May comes in at 19.9%. And then we get into the summer session. June's average return. is 8.5%, July's average is 8.7%, August's average Bitcoin return is negative 1%, and September is negative 4.6%. Point being, this is not just an errant phrase. All right, now we're back to Andre's piece. Why should we care about this? Well, if you just held cash during the months of August

Starting point is 00:02:51 and September when you were on holidays, and were only invested in Bitcoin during the rest of the year, you would have outperformed a Bitcoin buy-and-hold investor by four times. Hence, statistically significant seasonal performance patterns could theoretically be used to direct. arrive significant alpha. Moreover, the average seasonal performance pattern also suggests that Bitcoin could continue to rally over the coming weeks until around June, when the average seasonal performance pattern suggests that Bitcoin could make a pause during the summer months before continuing its ascent towards the end of the year. Having said that, as mentioned above, seasonal performance patterns can be observed on almost any time frame. In this context,

Starting point is 00:03:24 Bitcoin seems to have fared best at the beginning of the week, Monday to Wednesday, while the performance towards the end of the week and especially on weekends have historically been below average. Similar patterns can be observed during different trading hours. While the performance during Asian trading hours were mostly below average, European and American trading hours usually show above average performances historically. That being said towards the end of the American trading session, Bitcoin returns have historically been the worst. Similar intraday performance patterns can also be observed in traditional FX markets, where most of the trading volumes occur during the intersection between American and European trading hours.

Starting point is 00:03:58 Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. Bitcoin trades 24-7-365 around the globe, but fluctuations in price are ultimately a product

Starting point is 00:04:55 of human action. Thus, it is no surprise that Sell and May and Go Away seems to apply to Bitcoin's return profile as well. What Bitcoin continues to work like clockwork, its performance is ultimately determined by the time we are awake or asleep when we start working and when most of us are on holidays or not at work. Tick-Tock, next block. So that's the end of Andre's piece, but let's zoom out a little bit and talk about where this came from in general. As you heard, this has been around for quite some time. It's a conventional wisdom type of thing that's selling equity holdings around May and then buying them back after the summer, especially around Halloween or in October, has historically been a successful strategy. Now, to get a sense of how this applies to the stock market as compared

Starting point is 00:05:36 to, for example, Bitcoin, since 1990, the S&P 500 has returned about 2% annually from May to October. That compares to around 7% annually from November to April. In other words, it is statistically significant in the Tradfai world as well. What then are explanations for the phenomenon? Perhaps one of the most widely accepted has to do with the historical behavior of investors and traders in London during the 19th and early 20th centuries. Basically, this was a time period each year

Starting point is 00:06:05 where wealthy investors and traders would, if they had the means to leave London and spend the summer months either in the country or abroad in so doing reducing trading volumes. It's not hard to see how this pattern has, to some extent, persisted till today. Think about August in the Hamptons for example. Another explanation has to do with the policies of different institutional investors. Many mutual funds and other big institutional investors often end their fiscal year in September

Starting point is 00:06:31 and thus might sell off holdings that aren't profitable to capture the loss before that fiscal year ends. This can lead to temporary dips in the market, which then tend to be followed up by a rebound. A third explanation has to do with consumer behavior. Of course, consumer spending patterns change seasonally, with much higher spending during the end-of-the-year holiday season, which drives better earnings results for corporations, which then get reported, which then make stock investors happy, which could be part of why you see those bumps in months like March and April. Now, whether this pattern continues to be observed and be the norm remains to be seen. I think it's very dangerous, of course, especially in something like Bitcoin, to assume that

Starting point is 00:07:08 past performance is going to have anything to do with future results, even though it is fairly convincing, historically speaking. But just take this year, for example. We've got this totally new phenomenon of the ETFs going on, and if there's some major catalyst like, for example, an ETH-E-EF approval, could that actually change the trend? It's hard to say. Also, is it the case that the more that markets become decentralized and the more investors there are who aren't working literally on Wall Street, that some of the seasonality gets reduced? Basically, you have whole big swaths of people who aren't leaving to go to their Hampton's houses. It seems kind of rational that that would reduce some of this effect. But still, as of right now, it is very

Starting point is 00:07:47 significantly the conventional wisdom. And to the extent that you are looking for a reason to buy into it, at least over here in the cryptosphere where things really are trading 24 hours a day, maybe why it really matters is that it gives us all an excuse to go and, as they say, touch grass. That, I think, could be sorely needed. And so, for now, this is a maxim that I will continue to abide by. Although, of course, it's not so much sell in May and go away. It's more. like, hoddle all and come back in the fall. Anyways, guys, that is going to do it for today's long read Sunday. Big thank you to my sponsor for today's show. Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe and

Starting point is 00:08:25 take care of each other. Peace.

The Breakdown - For Bitcoin, Is It "Sell in May and Go Away"?

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