Will Bitcoin perform in October or ‘Uptober’?

Head of Treasury, Ang Kok Wee

Dear Clients,

Thank you for your interest in our weekly market commentaries. We strive to provide value through these reports. If you have any feedback on how we can do more for you, do let us know.

Each week, our commentary will typically cover three main topics:

Market Performance – An overview of past week’s capital market performance and identify the main drivers of the market.

Economic Data and Events – Highlight of key upcoming economic data and events that may impact the market.

Crypto-Specific News and Micro Factors – Related news and micro factors that may impact the price performance of Bitcoin and Ethereum. Key technical levels of Bitcoin and Ethereum, as well as some colour on the options market.

We try our best to provide timely and accurate information in our commentaries, but we also encourage you to verify them before using it. Please read our disclaimers for more information.

We hope you’ll find our weekly market commentaries useful!

With that, let’s get on with this week’s commentary.

Will Bitcoin perform in October or ‘Uptober’?

Past Week’s Performance Dashboard

Appetite for Risk

The S&P 500 Index tracks the performance of 500 large-cap companies listed on stock exchanges in the US. It has an aggregate market cap of $36 trillion in assets and account for close to 80% of the entire value of the US equity market. As such, it serves as a good barometer for general investor risk sentiments and the health of the U.S. stock market.

The Index has had a strong year so far despite some volatility in the market.  It has returned 11.7% year-to-date (YTD) as of Oct 4, 2023.

This can be due to several factors, including surprisingly strong corporate earnings in the past two quarters, robust GDP growth and a resilient employment backdrop.

A deeper dive into the composition of the Index provides a clearer explanation of its performance. Firstly, S&P500 Index is a market cap weighted index. In other words, size has a direct influence on how the index performs. There has never been a higher concentration of stocks in the Index in the past century. Another factor is sector concentration – among the top 10 components of the Index, seven are tech-based companies (Fig. 1), dubbed the “Magnificent 7”:

  1. Apple (AAPL)
  2. Microsoft (MSFT)
  3. Amazon (AMZN)
  4. Nvidia (NVDA)
  5. Google (GOOGL)
  6. Tesla (TSLA)
  7. Meta (META)
Fig 1 Top 10 SP500 Components by Market Cap Source Finvizcom as of Oct 4 2023

Great Green Blobs

To a large extent, a huge contributor of the stellar performance of these tech stocks has been the AI narrative. These seven big tech companies comprise 29% of the Index by market cap, yet are responsible for almost 65% of the Index returns (Fig. 2):

Fig 2 2023 YTD Returns of the Magnificent 7 vs the SP500 Index on an equal weighted basis Source Blackrock Morningstar Direct as of Jul 31 2023

The heatmap (Fig.3) also illustrates the unevenness of performance across in the Index:

Fig 3 2023 YTD Performance of SP500 components Source Finvizcom as of Oct 4 2023<em> <em>

Double Edged Sword

The lack of market breath does not necessarily imply that the market is about to crash. In fact, narrow market rallies tend to widen over time if market conditions remain favourable.

However, S&P500 returns have since retraced 8% from its 4,600 peak in July. This may be explained by seasonality, or the AI narrative having run its course. Yet, this is by no means capitulation as its YTD returns are still healthily in the green.

But this retracement could also mean that the market sees dark clouds ahead with stronger macro headwinds.

The Fed’s monetary policy conundrum has certainly caught on with the market. Perhaps that is the reason why bond yields have been on a tear, particularly after FOMC two weeks ago. (We explained bear steepening in the bond markets in last week’s commentary).

The US Congress narrowly avoided a shutdown over the past weekend, but investors are still worried that the government will not be able to pass a budget to control spending. The issue has been pushed back to mid-November, and in the meantime, the US Treasury is expected to sell more bonds to raise another $1 trillion in Q4 alone.

In the case of the S&P 500, investors must also consider the effects of the AI bubble deflation. A deeper pullback in tech stocks could be the “other sharp edge of the sword” that may cause a reversal of fortune in the Index and risk markets in general.

Whatever challenges the macro winds of change may pose in the future, it is important for investors to diversify their portfolios, especially during these times of concentration. Never fight the trend, but always keep dry powder when the market feels like it is painted into a corner.

Potential Market Catalyst This Week

Oct 6 (Friday)

  • 2030 hrs: USD Non-Farm Payroll (fc. +169k)
  • 2030 hrs: Unemployment Rate (fc. 3.7%)


Bitcoin price saw a sudden and unexpected 5% surge early on Monday morning, briefly crossing the $28,500 resistance level. While it gave back most of those gains, Bitcoin remains above the level it was trading at before the move. The reason for this move is unclear, but it is widely believed to have been caused by short covering during an illiquid period of the trading day (the Asia open at 6:15 AM on October 2, 2023).

October, or “Uptober” in crypto parlance, is typically a strong month for Bitcoin, with an average return of +20.8% over the past 10 years. However, the Bitcoin options market does not seem to share this enthusiasm entirely.

For tenures up to November, the risk reversal is negative. This means Put options (which bet on a price decline) are more expensive than Call options (which bet on a price increase).

Fig 4 Bitcoin Option Risk Reversals Across Tenures Oct 4 2023

While negative risk reversals are common in equity derivatives markets, they are more likely to be driven by crypto-centric sentiment in the crypto space.

For Bitcoin options, tenures up to two months have negative risk reversals, but then turn positive for longer tenures (Fig. 4). This suggests that the options market is pricing in more upside risk in the longer term, perhaps due to expectations of both a Bitcoin spot ETF approval and the Bitcoin halving event in April 2024.

Bitcoin underlying price has also been stuck in a range of $24,750 to $31,850 for most of the past six months, with support and resistance levels below (Fig. 5):

Fig 5 Bitcoin Support and Resistance Levels Oct 4 2023

Meanwhile, implied volatility continues to languish at the 10th percentile level (Fig. 6), showing no real pick up in interest.

Fig 6 Bitcoin At the Money Forward ATMF Implied Volatility by Tenure

Bitcoin has been less volatile than Gold and the S&P 500 in the past month, especially in terms of downside volatility. This means that Bitcoin has outperformed both assets over the past month (Fig. 7):

Fig 7 Inverse Correlation of Bitcoin vs SP500 and Gold since Sep 1 2023 Source TradingView

This does not mean that Bitcoin is immune to macro headwinds, but it does suggest that it could be a viable diversification play for an asset portfolio, especially over a longer time frame.

I believe that the range trade will continue to offer opportunities until Bitcoin breaks out of its current trading range. However, I would prefer to keep my positions/structures short-dated, under one month.

As a parting note for the week, FTX founder and CEO Sam Bankman-Fried goes on trial today for fraud and money laundering. If found guilty, he could face up to 150 years in prison. FTX’s collapse last November was a one of the major causes for the “crypto winter”. The trial may also shed light on how crypto exchanges operate and manage their customers’ assets.

Disclaimers: The commentary provided is intended for general circulation and/or discussion purposes only. It does not take into account your investment objectives, financial situation or particular needs of any particular person. The information in this commentary is not intended to constitute research analysis or recommendation and should not be treated as such.

Without prejudice to the generality of the foregoing, please seek advice from your financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe to any Nodeam product or service.

The commentary provided may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. Investments are subject to investment risks, including the possible loss of the principal amount invested.