Sell in May and Go Away?

Matrixport Research
May 18, 2023

[Xangle Digest]

※ This article contains content originally published by a third party on May 18, 2023. Please refer to the bottom of the article for the copyright notice regarding this content. 

※ This is a summary of the weekly research published by Matrixport on May 18th.



Executive Summary

As ‘Matrix on Target’ predicted, the returns for risk assets (Crypto and Tech stocks) have been exceptionally strong since January 1, 2023, as declining inflation keeps the eventual Fed interest rate pivot alive. Risk assets have rallied despite many market participants calling for a U.S. recession.

Bitcoin (BTC) prices have declined in four out of the last five years in June and the summer period tends to be quieter for Bitcoin bulls. But with volatility declining, cautious investors could use put options to hedge their downside risk. In fact we expect volatility to materially decline from the current low levels and follow equity vol into the low 20s. As the VIX index has now declined to 17%, we expect this to anchor Bitcoin volatility. 

Our Bitcoin Greed & Fear index has yet to reach distressed levels (sub-10%) where traders could have previously positioned themselves for higher prices. But the latest reading of 39% is almost jumping above the 21-day moving average (44%) and flipping could signal that short-term traders could expect higher prices when this flipping occurs. 

Our Bitcoin Greed & Fear Index. Source: Matrixport Technologies


Litecoin (LTC) token prices have rallied by +17% during the last week as a congested Bitcoin network has seen transaction fees rise and traders have been looking for cheaper alternatives, such as Litecoin. But as the ordinals hype is fizzling out, LTC could also correct lower — especially since Litecoin tends to decline leading into halvings with the next event expected in August 2023. 

Lido (LDO) token has even rallied +25% during the last week as Lido deployed its v2 iteration and introduced ETH withdrawals alongside measures to expand its validator set. This year, TVL (total value locked) has increased by $8.8bn to $68bn, with 75% of the TVL increase attributed to the staking sector. Lido, of course, is the market leader in staking. Staking is nothing else than storing your capital and making some 5% yield on your ETH. This is a far cry from the 10x returns people talked about a year ago or from the wild west days of yield farming.

Additionally, a panel of U.K. lawmakers is proposing classifying cryptocurrencies as gambling given “the significant risks they pose to consumers”. This statement will unlikely attract crypto entrepreneurs and they will search for other destinations. The number of jurisdictions is indeed shrinking.

Sell in May and Go Away? - What should investors do?

Common Wall-Street advice suggests selling stocks in May and to lock in the year’s gains as markets tend to rally in the beginning of the year, while later the excitement of a new year gives way to uncertainty. But during the last few years, we have seen U.S. stocks (SP500) rally as the combination of a dull summer market with institutional buying from pension funds squeezed markets higher. Seasonally, the SP500 has returned +2.5% for the month of July, on average, over the last ten years — it’s third best month for the year.

Similarly, the odds that Bitcoin prices continue to rally in June are weak from a seasonality  point of view. As an average, Bitcoin tends to rise only +6% with four out of the last five times Bitcoin prices declining in June. The odds improve with Bitcoin rallying by +11% in July, and in seven out of the ten years prices are positive.

The worst month appears to be September with prices declining by -3% and in the last six years Bitcoin declined every year in September. While Bitcoin was able to squeeze out positive returns over the summer, prices have tended to drop over the last few years in June and investors should consider hedging their downside risk as the decline in implied volatility has made put options cheaper.

Bitcoin seasonality - Q3 tends to be the weakest quarter (July, August and September). Source: Matrixport Technologies



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