A September surprise has given bitcoin a head start on a potential run to record highs in the fourth quarter. The cryptocurrency posted a 7.7% gain for September — historically its weakest month of the year — and its best month since May. It rose only 2.5% for the third quarter, however, after the cryptocurrency struggled to break out of the range its been drifting in since March. Ether finished September up more than 3% and third quarter down more than 20%. The path to new highs won’t be a straight one though. Bitcoin is still working through a supply overhang from the U.S. and German governments as well as Mt. Gox repayments to creditors. On top of that, many traders are standing by to see the outcome of the U.S. presidential election. Additionally, Federal Reserve Chair Jerome Powell said Monday that, although more rate cuts are on the way, there isn’t a clear path in place. BTC.CM= 1M mountain Bitcoin just posted its best September since 2012 “Liquidity remains thin across crypto and traditional markets, leaving room for sharp changes in volatility if macro events or regulatory news triggers sudden shifts,” said James Davies, CEO at crypto trading platform Crypto Valley Exchange. Risk assets are already off to a shaky start on the first day of October due to tensions in the Middle East. Investors are also monitoring a strike by members of the International Longshoremen’s Association on the East and Gulf Coasts that could cost the U.S. economy hundreds of millions of dollars. October and November are historically the strongest months of the year of the year for bitcoin. It has finished this month higher in all but two years since 2013, averaging a return of nearly 23%. The month has become known to native crypto investors as “Uptober.” “October [is] a period where liquidity returns to markets after a summer lull and companies position themselves for end-of-year earnings reports,” Davies said. “The market psychology of these events normally creates a positive feedback loop. … As crypto becomes increasingly correlated with traditional markets, it’s expected to be another strong month.” David Duong, head of institutional research at Coinbase, said the fourth quarter is likely to start with capital being applied. He added that macro conditions have played a large part in crypto performance over the last few months and that for better or worse, that will probably continue. Investors expect bitcoin’s price will be driven by rate cuts, more inflows into bitcoin ETFs by institutions and clarity following the election. The Fed isn’t everything, however. Investors also have their eye on the central bank of China. “[The Fed rate cut] provides a lot of cover for other monetary authorities and other central bank to actually be a lot more stimulative, and that’s what we got out of China,” Duong said. “I don’t think we should kind of underestimate how big this is … we’ve seen the weaker dollar trend for a while now, and that probably is here to stay at least for the for the interim. That means a lot of risk assets and crypto alongside it are going to perform fairly well.” Although bitcoin has struggled to break out of its range for most of the year, it’s still holding on to a 47% year-to-date gain. Ether is up 10% for the year. —CNBC’s Michael Bloom and Nick Wells contributed reporting
