October has been a good month for Bitcoin (BTC) and traders may be looking forward to capitalizing on the bullish seasonality, having seen the cryptocurrency hold steady through recent traditional market turmoil.

Bitcoin has put in a positive performance in October in eight out of the past 12 years, with an average return of around 30%. according to historical data sourced from charting platform TradingView. In other words, October has generated positive returns 66% of the time.

However, one indicator tracking the U.S. dollar liquidity calls for caution on the part of the bulls.

The so-called USD Liquidity Condition Index has slipped to a 19-month low of $5.7 trillion, according to chart provided by TradingView.

"The Fed net [dollar] liquidity is falling off a cliff, a clear headwind for crypto asset prices," Lewis Harland, a researcher at Decentral Park Capital, said in a daily market update.

The index assesses the degree of dollar liquidity based on the interaction of three factors – the size of the Federal Reserve's balance sheet, the Treasury General Account (TGA) and the reverse repo balance held at the New York Fed.

The liquidity declines when the Fed's balance sheet contracts, the TGA and repo balances rise. On the contrary, an expansion of the Fed's balance sheet and a decline in the TGA and repo balances indicates an uptick in the dollar liquidity.

The Fed kicked off its tightening cycle in March early this year and has raised borrowing costs by 300 basis points since then. The central bank is likely to hike further, taking the benchmark interest rate to 4.7% in the coming months. Further, the bank is reducing its balance sheet size at a monthly pace of $90 billion.

Since 2021, major bitcoin price tops and bottoms have coincided with local peaks and troughs in the dollar liquidity index, as Arthur Hayes, co-founder and former CEO of crypto spot and derivatives exchange BitMEX, detailed in the Aug. 23 blog post while calling bitcoin, "a high powered measure of USD liquidity."

With the dollar liquidity index slipping to a new year-to-date low, the odds appear stacked against bitcoin chalking out gains in the seasonally bullish month of October.

Bitcoin

Chart shows local USD liquidity tops and bottoms from 2021 have coincided with major bitcoin price tops and bottoms. (TradingView)

With the dollar liquidity index slipping to a new year-to-date low, the odds appear stacked against bitcoin chalking out gains in the seasonally bullish month of October.

"It may be a final straw that broke the camel's back," Harland wrote, referring to a possibility of a final capitulation slide in bitcoin in the wake of a continued tightening of the dollar liquidity.

Bitcoin changed hands at $19,630 at press time. Since Sept. 21, buyers and sellers have been unwilling to lead the price action, leaving the cryptocurrency rangebound between $18,000 and $20,000.


All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

Recommended content


Recommended Content

Editors’ Picks

Is Altcoin Season here as Bitcoin reaches a new all-time high?

Is Altcoin Season here as Bitcoin reaches a new all-time high?

Bitcoin reaches a new all-time high of $98,384 on Thursday, with altcoins following the suit. Reports highlight that the recent surge in altcoins was fueled by the victory of crypto-friendly candidate Donal Trump in the US presidential election.

More Altcoin News
Shanghai court confirms legal recognition of crypto ownership

Shanghai court confirms legal recognition of crypto ownership

A Shanghai court has confirmed that owning digital assets, including Bitcoin, is legal under Chinese law. Judge Sun Jie of the Shanghai Songjiang People’s Court shared this opinion through the WeChat account of the Shanghai High People’s Court.

More Cryptocurrencies News
BTC hits an all-time high above $97,850, inches away from the $100K mark

BTC hits an all-time high above $97,850, inches away from the $100K mark

Bitcoin hit a new all-time high of $97,852 on Thursday, and the technical outlook suggests a possible continuation of the rally to $100,000. BTC futures have surged past the $100,000 price mark on Deribit, and Lookonchain data shows whales are accumulating.

More Bitcoin News
Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange

Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange

Shiba Inu trades slightly higher, around $0.000024, on Thursday after declining more than 5% the previous week. SHIB’s on-chain metrics project a bullish outlook as holders accumulate recent dips, and dormant wallets are on the move, all pointing to a recovery in the cards.

More Shiba Inu News
Bitcoin: New high of $100K or correction to $78K?

Bitcoin: New high of $100K or correction to $78K?

Bitcoin surged to a new all-time high of $93,265 in the first half of the week, followed by a slight decline in the latter half. Reports highlight that Bitcoin’s current level is still not overvalued and could target levels above $100,000 in the coming weeks.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP