Halloween is an annual celebration of all things spooky and scary. Commonly, when you think of Halloween, your thoughts would lead to ghosts, monsters, zombies, pumpkins or trick-o-treat candies. For the finance community, Halloween is surprisingly an annual phenomenon that is looked forward to due to the speculative relationship between the holiday and the price effects on Bitcoin. This phenomenon is called the Halloween effect (also known as the Halloween strategy or Halloween indicator).
Traditionally, investors and traders use technical and fundamental analysis to determine the strength or weakness of an asset before buying or selling. The Halloween effect falls under the unconventional method category, which includes analyzing dates, cycles and astrology. In the Halloween effect, traders are encouraged to “sell in May and go away.” It is believed that Bitcoin price will perform best from October 31st until May than the other half of the year.
WHAT IS THE HALLOWEEN EFFECT?
Halloween effect refers to a seasonal pattern where financial assets tend to incline in price during and/or after October 31st which is Halloween Day. If the asset price inclines, the price tends to stay positive for the following few months.
HOW DOES HALLOWEEN day affects BITCOIN PRICE?
BTC Price Difference from 1 May to 1 October
BTC Price Difference from 31 October to Highest Peak in December
Let’s investigate the Bitcoin price trends leading up to and after Halloween period in the previous years and what we can learn from them.
1. THE GOLDEN YEARS
2017 was Bitcoin’s most historic year (also known as the “Bitcoin Boom”) where the price was almost as close to $20,000. Generally, Bitcoin was performing well throughout the months of 2017. From 31st October, Bitcoin price rapidly grew by 208.8% within less than two months from $6,368 to it’s all-time-high $19,665 on 16th December.
This was a significant leap in growth rate compared to the prior months from May to October. The positive and big leap in growth rate trend in 2017 was similar of those in 2016, 2015, 2014 and 2013.
2. TREND IS FLATTENING (AND DECLINING)
On the contrary in 2018 onwards, the trend does not reflect similarly to its prior years and the magic of the Halloween effect began to fade away.
In 2018, the Bitcoin price declined by -27.9% from 1st May to 1st October. On 31st October, the price reached $6,265.06 and remained within the $6,300 range until it began to decline rapidly. From 14th November, the price declined by -33.5% from $6,412.86 to $4,264.84 on 24th December.
In 2019, Bitcoin price managed to peak at $12,996.12 on 27th June. This opposes against the belief that traders and investors should sell Bitcoin after May, expecting the price to decline further and potentially losing out of their investment. From staying above the support level of more than $10,000, Bitcoin price eventually began to drop down in October onwards. From 31st October to 23rd December, Bitcoin price declined by -22.5% from $9,171.87 to $7,488.20.
WHERE ARE WE NOW?
From 1st May to 1st October 2020, the price of Bitcoin inclined by from $8,610.64 to $10,770.88. From looking at the graph below, we can see that there is a speak uptrend where it reached its all-time high in 2020 at $13,655.19 on 28th October.
IS THE HALLOWEEN EFFECT REAL?
Although we can see a positive performance of Bitcoin in the year 2020 and across the years prior in 2013 to 2017, does this conclude that there’s a direct correlation between the spooky season to the price of Bitcoin?
Price action of any asset, whether it’s Bitcoin or other alternative coins, should be analyzed with the context of its period.
In 2017, the factors behind the rapid growth rate in Bitcoin price were contributed by market manipulation. According to the research paper created by John Griffin and Amin Shams, from University of Texas and Ohio State University respectively, investigated whether Tether (digital currency pegged to the U.S. dollar) influenced Bitcoin and other cryptocurrency prices in the 2017 boom. They found that “Tether was used to buy Bitcoin at key moments when it was declining.” These patterns were creating support for Bitcoin which led to huge price impacts. In addition, they found that 50% of the rise of Bitcoin and 65% rise of other major altcoins were affected by the 87 hours of heavy Tether trading.
Investopedia noted that “no one has been able to conclusively identify a reason for this seasonal anomaly.” It is believed that it could be a coincidence that investment professionals’ holidays during the summer months (May to August) may have a direct impact on the performance of Bitcoin; hence, the price of Bitcoin is generally lower than in Q3 and Q4 of the year.
In conclusion, whether it’s real or not, all traders and investors should always practice both technical and fundamental analysis to do data-backed decisions on any asset. It’s still an interesting phenomenon that gets the adults back into the Halloween spirit too!