Summary February has historically been the second best month of the year for Bitcoin price returns, after only October. Some of the best single month returns for Bitcoin have come in Februaries following halving years. 2024 was a halving year. On-chain data shows diminishing supply held via exchanges, and miner supply is also slowly trending lower. Miner share of volume also indicates upward price pressure is likely. While BITO will get dragged higher with Bitcoin in a sustained rally, it's not the best way to play Bitcoin longer term. A little over two months ago, I said I was buying the "breakout shakeout" in Bitcoin ( BTC-USD ) in an article covering the ProShares Bitcoin Strategy ETF (BITO) for Seeking Alpha. The performance since that call has been solid. The total return for BITO since that piece is nearly 40%. In a more recent piece , I gave some thoughts on the technical setup that I saw in the chart of Bitcoin near the beginning of January: Bitcoin's daily chart shows RSI divergences going back to November. The coin has also given back the 50 day moving average and appears poised to go below $90k per coin for the first time in nearly two months. While I still liked the potential for new price highs in BTC between now and the end of the year, I did see weakness in the chart that I felt foreshadowed sub-$90k BTC prices in the shorter term. We have since seen a very temporary breach of that $90k level and a quick 12% gain from those lows in just 2 days. In this article, we'll go over seasonality implications for Bitcoin as we approach February and look at some of the important supply/demand implications from the on-chain data. Seasonality Signals Before we get too far into this, take heed of the old investment adage that past performance does not guarantee future results. This is true in all investment forms and doubly true for the digital asset market. That said, I do think that seasonality trends can be helpful and, to a degree, self-reinforcing. February is typically a terrific month for Bitcoin. Bitcoin Seasonality, by month (TrendSpider) Over the last 11 years, the month of February has generated a positive return 73% of the time, and the mean return over that time is 10.6% in the month. After October, February has historically been the second best month of the year for BTC price returns. While January is more mixed, if we get more granular we can see that we're moving through what has historically been a rough patch to start the year: Bitcoin Seasonality, by week (TrendSpider) Week 2 has typically resulted in a negative week over the last 11 years. Weeks 3 and 4 are a bit more mixed, as they result in gains more often than not but have slightly negative mean changes. The details about February are what I find to be more useful: Year February Return 2012 (Halving Year) -11.7% 2013 54.9% 2016 (Halving Year) 18.5% 2017 21.5% 2020 (Halving Year) -8.2% 2021 36.0% 2024 (Halving Year) 44% Source: CryptoRank If we look at Bitcoin's February price appreciation following halving years, we see an average February return in those years of over 37%. The point is, February is historically a great month for BTC price returns and post-halving year February has typically been an exceptional month to be long Bitcoin. As I said at the beginning of this section, this does necessarily mean this year will be the same. There is perhaps an argument to be made that the approval of spot ETFs in the United States last year pulled forward expected gains for the 2024 halving cycle. February 2024 returned 44% in a halving year - this is not typical and is the kind of return that would be expected in a post-halving year. Cycle Date Price On Halving Cycle Top Price Days To Cycle Top 1st Halving Nov 28, 2012 $12.38 $1,191.55 366 2nd Halving Jul 9, 2016 $644.39 $19,310.77 525 3rd Halving May 11, 2020 $8,758.85 $72,500.92 1,402 4th Halving Apr 19, 2024 $62,549.72 $106,839.06 242 Source: IntoTheBlock Furthermore, the cycle top high from the 3rd halving took nearly the entire 4 years from the date of the 2020 block reward halving. While we've certainly had a new high already during this 4th halving epoch, we don't yet know if it is the high price for the cycle or not. I don't think we can rule out the possibility that the top is already in, but I'm personally of the view that the coin will make one more new high before a larger pullback. Signals From On-Chain Data While the long-term trend in on-chain activity has been disappointing when looking at metrics like daily active users, there are other figures that are headed in the right direction. For instance, monthly USD-denominated volume: Adjusted Monthly Volume (The Block) In December, Bitcoin's on-chain volume topped $2.2 trillion. This was certainly not a record for monthly volume, but it was a 125% improvement over December 2023 and a 73% improvement over volume from the last halving-year December (2020). Shifting to supply/demand dynamics, the aggregated exchange balance continues to decline: Bitcoin Exchange Balance (CoinGlass) As of January 15th, the BTC exchange balance was just 2.2 million, or 11% of the circulating supply. A year ago, the exchange balance was 2.7 million BTC. So even as more BTC has been mined into circulation over the last 12 months, the number of BTC held through centralized exchanges has gone down by 23%. A declining exchange balance has generally been viewed as a bullish signal and indicative of a holder base that doesn't plan to liquidate the asset. One of the primary sources of sell-pressure is Bitcoin miners: BTC Miner Supply (CoinMetrics) We've obviously seen more of a trend toward HODLing BTC even from many companies in the public equity markets . Despite that, miner supply of BTC has generally trended lower and is currently sitting at 1.8 million BTC. Miner volume share has started to plummet as well: Miners Volume Share (IntoTheBlock) So far in the month of January, miner volume share is averaging about 5%. Theoretically, the long term trend here should be down as more on-chain usage is from non-mining entities. When Bitcoin's price peaked back in November 2021, miner share fell down to just 1.3%. Like everything mentioned before, there is no rule that says the same thing has to happen again. But generally speaking, these metrics are all indicative of market expectations for higher prices. Supply is coming off exchanges, miner share of volume is plummeting, miner supply is at decade-lows, and on-chain volume is picking up steam. ProShares Bitcoin Strategy Despite the proliferation of spot ETFs that have entered the market over the last 12 months, BITO is still a very well capitalized fund at $2.5 billion. However, given the fund does utilize a futures-based strategy rather than a spot strategy, it is more expensive to play Bitcoin this way over longer periods of time. The 0.95% expense ratio is closer to parity with the Grayscale Bitcoin Trust ETF ( GBTC ) at 1.5% than it is the iShares Bitcoin Trust ( IBIT ) at 0.25% 1 Year Price Return (Seeking Alpha) Unsurprisingly, the total return in BITO has lagged that of both IBIT and the underlying asset. For that reason, I'm not a fan of BITO as a long term investment relative to spot funds. However, I do think Bitcoin has more room to run higher this year and in the event BTC rips to new highs, the coin will drag BITO up with it. Final Takeaways 2024 was a monster year for Bitcoin, both from a price appreciation standpoint and an investor demand standpoint. To be sure, there have been key differences in this halving epoch compared to previous halving cycles. There is certainly no guarantee any of this means the price of Bitcoin has to continue higher. As investors and traders, the best we can do is make a judgement based on numerous pieces of information. From where I sit, there are positive signs in the supply/demand dynamics of Bitcoin; exchange balance continues to decline and miner share of volume is falling quickly. Miners have even flipped from sellers to buyers. Beyond that, February has historically been a terrific month for BTC price returns - particularly in post-halving years, and 2025 is a post-halving year. It's absolutely possible we've already seen the price high for this cycle, but I'm betting we get one more large move higher before the deeper pullback in BTC. I'm reiterating BITO as a 'buy' purely on the belief the fund will move with Bitcoin. But there are better ways to get exposure to BTC with a longer-term perspective.
