Cryptocurrencies are experiencing their second sell-off in September. With China’s Evergrande crisis sparking fears of a massive global asset sell-off, Bitcoin saw a 24-hour low of $40,267 before regaining slightly to close out at slightly over $43,000 for 1 BTC. But Bitcoin was not the only cryptocurrency to see a dip for the second time in the month. Ether, XRP and Cardano are all down over both a week-long period and over the month.

This is not the first time that cryptocurrency, and Bitcoin in particular, have been in the red in the month of September. The September bearish market for crypto has been observed over the past four years.

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Something about September?

However, the phenomenon is not isolated to cryptocurrency assets. The stock market has historically performed the worst in the month of September. The US stock market indices, which track the performance of the stock market by tracking the price of share prices of some of the biggest companies in the US, like the Dow Jones Industrial Average (DJIA), S&P 500, and the NASDAQ, have performed the worst in the month of September. The effect is well-recorded enough where it has been termed the September Effect.

While many have theorised about what causes the September Effect, there is no consensus on what causes the effect. It has been observed that the effect has been dissipating over the past few years, and in some years stock markets have managed to even grow during September contrary to beliefs of a constant bear market.

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Most believe that the September Effect is a prime example of market psychology, where enough investors believe in the idea of the bear market in the month and thus sell off their stocks. This sell-off results in a dip in prices which further reinforces the idea of the September effect.

The Bitcoin case

Similarly, in the case of cryptocurrencies like Bitcoin, there is no particular reason as to why September has been a ‘bad’ month. For September 2021 in particular, the cryptocurrency market has been in a volatile state since the start of the year, and even slight changes in global situations have produced significant effects on crypto prices.

In September, the potential fallout of Evergrande in China, the adoption of Bitcoin in El Salvador and South Korea’s shuttering of crypto exchanges have had major effects on the price of the prime cryptocurrency. These effects have had a more tangible influence on Bitcoin prices than the mythical September Effect.

While many investors and crypto enthusiasts swear by the effect, the likely explanation from the previous five years of poor performance in the month is just a random chance that many individuals try to fit into a false pattern.

(Edited by : Shoma Bhattacharjee)

First Published:Sept 22, 2021 9:22 AM IST