Across the brutally battered crypto market, altcoins are beginning to show their first signs of a potential recovery following a nearly 90% drawdown in most assets. But could the recovery be due to a calendar-based phenomenon called the January effect?
Cryptoaltcoins explode to kick off the new year
Take a look at the top cryptocurrencies from CoinMarketCap winners and losers over the past seven days, and the returns of many major altcoins are reminiscent of the previous bull market for Bitcoin and other coins.
GALA, for example, tops the list with a growth of 138% in the last week. Lido DAO is right behind with 61% in a week. Dozens of altcoins have surged 20% or more in the same time period. Even specific altcoins caught up in the FTX-related fallout, like Solana, have posted the largest monthly bullish candle since August 2021.
January and 2023 have been off to a good start for anyone daring to buy the dip. But why exactly are altcoins experiencing such strong performance relative to Bitcoin or Ethereum, which are up roughly 5-10% over the same time period?
The answer could be something called the “January effect,” a calendar effect that takes place during the month of January. Other calendar effects in financial markets include “sell in May and go away”, the Halloween effect, the July effect and the Santa Claus rally.
GALA produces one of the largest altcoin rallies since the bull run | GALAUSD on TradingView.com
What is the January effect?
According to the Wikipedia entry on the subject, the january effect it is a “hypothesis that there is a seasonal anomaly in the financial market where the prices of securities increase in the month of January more than in any other month”. Simply put, there is a chance that some assets will outperform in January than in the rest of the year ahead.
The phenomenon was first detected in 1942 by investment banker Sidney B. Wachtel. Watchel noted that small-cap stocks outperformed the rest of the market in January, with most returns coming before the middle of the month. Watchel also noted that, for whatever reason, the third year of a president’s term in a presidential cycle would provide the greatest benefits of all.
Investopedia claims that the increase in buying activity It is due to Investors buy small-cap assets after picking up the year-end tax-loss crop following a price slump. This is common practice for higher net worth investors looking to maximize all possible tax benefits. Even the Bitcoin bull and the MicroStrategy figurehead reaped the harvest of some tax losses due to his losing BTC holdings.
Smaller altcoins, given the lower volume and liquidity profile, react much more strongly to the shift from year-end selling to new year buying excitement. Another possible reason is because investors first implemented a new investment plan starting in a new year.
Whatever the reason, considering how much many altcoins have risen, this January is currently tilted in favor of proving this phenomenon accurate. Whether this is to be expected or due to the downward trend combined with the third year of Biden’s US presidency remains to be seen.
Considering that most of the data suggests that the party ends a little before the middle of the month, altcoins could have a few more days to shine. How will January end for cryptocurrencies?
On my Telegram channel, I ran an experiment called “The January Effect” where I bought a handful of altcoins and shared my tickets. Since December 31, 2022, the results have been spectacular. FET and SOL have the best performance and the average performance is a 37% increase. Last 7 days in crypto: pic.twitter.com/1NEOlXTpV7
— Tony “El Toro” Spilotro (@tonyspilotroBTC) January 10, 2023
