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Cryptocurrency investors have had a rocky 2022. But we're now entering a time of year that's usually good for crypto prices.
Bitcoin, ether and other cryptos have moved in patterns similar to stocks this year. They've tumbled amid high inflation and the Federal Reserve's interest rate hikes — a move intended to cool the economy but that also tends to bring down the price of financial assets like stocks, bonds and crypto.
Bitcoin, which hit a high of roughly $68,000 per coin last November, has plunged to around $20,000. Ether, the second largest cryptocurrency by market value after bitcoin, rose to a high of around $4,800 per coin last year and now sits close to $1,350.
Even so, there may be some reason for optimism. While past performance is no indicator of future results, data shows that crypto prices tend to get a bump during the last few months of the year. In fact, we've just entered what is generally considered the best month for bitcoin prices.
Here's how crypto has performed in October, November and December in previous years and what investors can expect in 2022.
Crypto prices usually rise at end of the year
September is usually a bad month for bitcoin, but it ended the month down only 0.5% through midday Friday, analysts Bespoke Investment Group wrote in a note to clients at the end of last week. That's much better than the S&P 500, which lost 9.3% in September. Ether, however, fared worse with a 12.5% drop.
"That weakness during the month was in line with seasonal patterns but weakness has the potential to turn around to strength as October begins," the Bespoke analysts wrote.
If recent historical trends hold up, crypto prices could now be looking up. Over the last five years, bitcoin has gained an average of around 25% in October — the biggest rise for any month — plus 8% in November and 11% in December, according to data from Bespoke. October has been a positive month for bitcoin's price 80% of the time, while November and December have been positive months just 40% of the time.
Ether's past performance is a bit more mixed towards the end of the year, according to Bespoke's analysis. Looking at all years since 2018, ether's price has gotten an average bump of 9% in October, but just around 2% in November and less than 1% in December. And while October has been a positive month for ether 75% of the time since 2018, November and December were positive months just half the time.
Why crypto has performed better in final months
It's hard enough to explain why stocks rise and fall. Understanding crypto price moves is much harder for a variety of reasons. For example, stocks have fundamentals like company earnings for analysts to assess while cryptos don't. Stocks are also less volatile.
Still, experts can attempt to provide explanations for crypto's seasonal trends. For professional investors, there is always a lot of money in motion during the fourth quarter. Investment and risk committees are finishing up research and diligence projects and investors are thinking about how they want their portfolios positioned for year-end, says Matthew Hougan, chief investment officer at Bitwise Asset Management, a crypto index fund manager.
"On the margins, in most years, this leads to crypto allocations," he adds. "I suspect it will this year as well."
Plus, stocks and crypto do see related price movements, says Mark Connors, head of research at Canadian digital assets firm 3iQ. While seasonality patterns for bitcoin — the largest cryptocurrency — may not be as strong as the seasonality pattern for stocks, stocks and crypto prices have moved similarly this year.
Experts attribute much of this to wider adoption of crypto.
Where to expect crypto prices are heading next
Seasonality and historical data does not guarantee how prices will fare in the future. However, the numbers may be able to give us some insight into what to expect for the rest of the year from crypto prices.
"There's a lot of optimism here that bitcoin is stabilizing here and — given this current macro backdrop — that's rather impressive," says Edward Moya, senior market analyst at multi-asset broker OANDA. Bitcoin's price managed to stay relatively stable last week as other assets plunged.
Moya adds that some investors appear to believe crypto is near or has already hit a bottom. This all supports the potential for positive year-end for crypto.
"Are there potential catalysts that could turn bitcoin below the summer lows and into free-fall? Easily," Moya says. "But right now, that's not the way people are positioning themselves."
Overall, the likely trajectory of crypto prices remains quite murky. Currently, there's perhaps more uncertainty around crypto than usual, thanks to the ongoing series of interest rate hikes.
"Seasonality does exist, however the Fed hiking cycle has thrown a lot of that out the window," Connors says.
In short, the last quarter of the year tends to be an overall good one for crypto. But using past performance to try to time the market is not a strategy financial advisors recommend. Especially when it comes to an asset as volatile and unpredictable as crypto.