Could tax season hurt crypto?

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Hey everyone,

As we enter April - which is tax season in the US - I thought it would be interesting to see if tax season has any impact on the crypto market.

The theory floating around is that during tax season, investors sell assets to cover taxes, resulting in a net capital outflow from the market.

To some degree that is true.  But does it have a real impact on crypto prices?

It’s hard to answer this specific question, but one thing we can do is look at the seasonality of Bitcoin returns over time.  The reason why we use Bitcoin to assess the seasonality of the crypto space as a whole is because, where Bitcoin goes, often so does the rest of the crypto market.

Here is the range of Bitcoin returns that have occurred during each month, over the last 10 years:

The first thing to notice is seasonality is not enough to predict where prices will go.  The minimum and maximum returns for most months have a very wide range of positive and negative outcomes.

The second observation is tax season typically hasn’t resulted in negative price movement in crypto. Remember…just because there is a narrative going around in public, doesn’t mean its true…always look for data.

Beyond those points, there are some trends here that are worth calling out.  There is a story of seasonality to be told when looking at the middle of the ranges for each month (25th - 75th percentiles).

So what’s that story?

• January / February: Typically flat in Jan, and then up in Feb 🚀

• March: Typically flat-ish

• April: Usually bullish 🚀 - YOU ARE HERE

• May: Another flat-ish month on average, but with a wide range

• June / July: Both months biased bullish 🚀

• August / September: These are consistently bad months 🐻🐻

• October: Need I say more? Most bullish month for Bitcoin 🚀🚀🚀 

• November: Another flat-ish month on average, but with a wide range

• December: Biased bullish for the end of year Santa Claus rally 🚀

Before ending this article, thought it would make sense to give a quick update on how the bull flags in last week’s article played out.

The breakouts failed, but Bitcoin turned into a bullish pennant instead. This is very similar to a bull flag (target is height of flag pole). Reminder that technical analysis like this highlights possible moves more than it accurately predicts outcomes.

(You might argue the flag pole should go down further, which would increase the target if it breaks out to upside)

Have a good week.

Cheers,

Justin

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