Redtember in Full Effect? Crypto Stocks, Bitcoin, Altcoins Plunge in First Half
Bitcoin and cryptocurrencies have experienced a tumultuous month so far. But a potential Federal Reserve rate cut offers a glimmer of hope. l Credit: Mario Tama/Getty Images
- September has historically been a challenging month for risk assets, including Bitcoin.
- Bitcoin continued the downward trend this year, reinforcing the “Redtember” phenomenon.
- But anticipating a potential Fed rate cut has provided some optimism for a market reversal.
Historically, September has been a challenging month for risk assets, including Bitcoin. In fact, traders created the term ‘Redtember’ to refer to this month. Bitcoin has continued the trend this year, declining by 7.5% in August and 6.3% in September.
However, anticipating a potential interest rate cut by the Federal Reserve has raised hopes for a reversal in the crypto market’s downtrend. Even if not all market observers agree.
Crypto Stocks Plunge
Cryptocurrency exchange Coinbase experienced its most turbulent week of the year , with its stock plunging 20% to a February low amid an ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) over unregistered securities sales. The decline has eroded Coinbase’s market share in the US, falling from over 50% in June to 41% in early September.
Bullish has capitalized on Coinbase’s struggles, with its market share nearly doubling to 33% during the same period. Other crypto-related stocks also suffered, with MicroStrategy dropping 14% and leading bitcoin mining companies experiencing double-digit declines.
The SEC’s allegations against Coinbase have cast a shadow over the entire crypto industry, raising concerns about regulatory uncertainty and potential legal risks for other crypto platforms. The outcome of the case could have far-reaching implications for the future of cryptocurrency trading in the United States.
In addition to the SEC battle, Coinbase has also been grappling with declining trading volumes and a broader downturn in the cryptocurrency market. The company has been taking steps to reduce costs and diversify its revenue streams, but its challenges remain significant.
Bitcoin Performance in September
Bitcoin’s performance in September has shown mixed results over the years, marked by both impressive gains and occasional declines. While the overall trend leans positive, volatility is a key characteristic of this period.
Notably, 2023 has a massive 191% gain, representing Bitcoin’s highest monthly return. In contrast, the smallest decline was seen in 2021, with a modest drop of 1.61%. On average, September has delivered an impressive 451% return, although this figure reflects the outsized influence of certain exceptional years. The median return, a more balanced measure, is 435%, suggesting that in most years, Bitcoin has delivered positive returns.
A look at specific years highlights this variability. While 2022 brought a small 5.6% gain, 2021 and 2019 saw losses of 1.6% and 13%, respectively. Other notable years include 2020, with a strong 28% increase, and 2017, which saw a hefty 48% gain.
Despite these fluctuations, Bitcoin’s overall performance in September shows a favorable bias, with more years posting gains than losses. However, this historical volatility means that investors should remain cautious, recognizing the potential for both significant gains and downturns during this period.
Crypto in Red
The first week of September witnessed a negative trend across the top cryptocurrencies. Maker (MKR) and Flow (FLOW) experienced the most significant declines, losing 9.6% and 9.2%, respectively. Arweave (AR) also saw a notable drop of 7.6%.
Litecoin (LTC) faced a slump of 7.3%, while Polygon (MATIC) declined by 6.8%. Ethereum (ETH), the second-largest cryptocurrency by market capitalization, lost ground with a weekly decrease of 6.6%.
The chart illustrates the total cryptocurrency market capitalization over the first ten days of September. The market cap initially declined during this period, reflecting bearish sentiment. Starting at over $2.15 trillion, the market saw a notable drop between Sept. 3 and 7, reaching its lowest point of around $2 trillion on Sept. 7.
However, after this dip, the market began to recover, with a steady rise through Sept. 8 and a sharp increase leading up to Sept. 10, pushing the total market cap back towards $2.1 trillion. This upward momentum towards the end of the week signals improving market sentiment after a sluggish start.
The chart shows relative stability throughout the week in terms of trading volume (blue line), with minor fluctuations that align with market cap changes. The initial market downturn was accompanied by slightly lower trading volume, while a slight uptick in activity marked the recovery towards the end of the week.
Can Fed’s Cut Invert the Trend?
Bitcoin’s 30-day volatility has surged to 70%, significantly higher than last year’s levels and approaching March’s peak. This heightened volatility, driven by factors like ETH-centric events and regulatory developments, has made September particularly unpredictable.
A Federal Reserve rate cut could counterbalance market pressures in several ways. First, it can enhance market sentiment by boosting investor confidence and encouraging a greater appetite for risk. This environment often leads to increased demand for riskier assets, such as cryptocurrencies.
Additionally, lower interest rates ease financial conditions, reducing borrowing costs and stimulating economic activity. This, in turn, can create more favorable conditions for cryptocurrencies by increasing overall demand for goods and services. Finally, a rate cut can weaken the US dollar, making cryptocurrencies more attractive to foreign investors seeking alternatives to traditional currencies.
But not all experts agree on this view. 10x Research has noted that a fifty basis point interest rate cut by the Federal Reserve on Sept. 18, 2024, could signal underlying economic concerns. Such a larger-than-expected cut might suggest that the Fed believes it is too late to prevent an economic downturn, potentially leading investors to shift away from riskier assets like stocks and cryptocurrencies.
While analysts and futures markets consensus is for a 25-basis-point cut, a 50-basis-point reduction would be a significant departure from recent trends. The Fed has historically used larger rate hikes, such as 50 or 75 basis points, to combat inflation.
A more aggressive rate cut could indicate a heightened sense of urgency and potentially spook investors, leading to a sell-off in riskier assets.
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