Welcome to the beginning of Q4, Bitcoiners. With September behind us, a lot of chart watchers are getting increasingly excited about where Bitcoin could go in the remainder of the year.

The month of September was characterized by classic volatility. Bitcoin was up 8% for the month, but along the way we saw a 10% drop in the first week, followed by a 26% rally over the next three weeks. Volatilty like this is either something you love or something you hate, and it really depends on how you construct your portfolio, your timeline, and long term outlook.

Since the sharp run up in January and February, Bitcoin has been chopping sideways, making a “Bull Flag” as we mentioned last month. Some are calling this “chopsolidation” a term we like because the price is both consolidating the early gains, but also exhibiting typically high volatility that has the knock on effect of shaking out weak hands. It’s hard to hold your position in a market like this unless you have a long term time horizon and understand the dynamics of the price movements year-to-date.

It is our view that the January launch of spot Bitcoin ETFs in the US pulled forward price appreciation into Q1, and the resulting sideways grind has been investors digesting this gain to end Q3 where it was likely to have been anyway.

One of our favourite ways to think about the price is in terms of where we are in the cycle. Some charts start this at the halving, but we prefer starting it at the cycle low, because it aligns more with investors sentiment since there is often a run up into the halving which can distort the start position. We’re not arguing that the halving isn’t functionally responsible for Bitcoin’s four year cycle, just that it’s best to use the cycle low as the starting point for looking at price action and determining where we are in the process.

As you can see below, the current cycle (black line) is entirely consistent with the previous two cycles. Genesis to 2011, and 2011 – 2015, are shown for completeness but we warn clients against expecting moves like those going forward. Back then the nascent network had virtually none of the large players we have today, and also the impact of the halving was far greater. We expect Bitcoin vol to drop in the years ahead as there will be more market participants, more individual decision makers determining the marginal price, and also because the impact of the halving also drops every cycle.

The take away from this chart is that price is exactly where it should be at this stage in the cycle and the next 12 months is often characterized by a higher move in price. There are no guarantees in life, but there is good reason to be bullish based on cycle theory alone.

Back to the subject of volatility, we include the following two charts for your consideration. Bitcoin’s one year 30 day volatility compare to the S&P 500. The 100 day moving average is overlaid in blue to give you the long run number. We chose the past year because it’s most recent and indicates where the market is for now.

Now here are the returns over the past two full years, and 2024-to-date.

Simply put, as of this writing, Bitcoin is a 40-vol asset with an average annual return of call-it 45%. The S&P 500 is a 13-vol asset with an average annual return of 10%.

Size your positions accordingly. But don’t ignore the opportunity! It’s not every day that a high vol, high returning asset class is invented (hint: never happens). This makes Bitcoin a great diversifier in for portfolios looking to add growth to their strategic asset allocation.

On the subject of adoption, there are various metrics to track including active addresses or nodes on the lightning network. But perhaps for those of us old enough to remember the first cell phones, this graphic is a good indication of where we are

We’ll leave you with one final point on price action seasonality. As we look ahead to October, often nicknamed Uptober, this tweet caught our attention. Will history repeat?

Looking to invest in Bitcoin? Explore the Evolve ETFs Bitcoin ETF (TSX: EBIT).

Good luck and see you next month.

– Elliot Johnson CIO, COO Evolve ETFs

Source: Shutterstock Credit: Godlikeart

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