It’s a well-known market phenomenon: Stocks tend to rise at the very end of the year, and then again in the first few days of the new year. In fact, this phenomenon is so famous that it even has a name: the Santa Claus Rally. The size and scope of this rally is often used to predict how the market will perform over the next year.
However, the crypto market has something better than the Santa Claus rally as a predictor of performance. There are two major events in the first few months of the year that could have a major impact on the future trajectory of Bitcoin (BTC 0.21%) and other cryptocurrencies. Let’s see.
The first place Bitcoin ETF
The first major event is the arrival of a spot Bitcoin exchange-traded fund (ETF) for the US market. Yes, there are already Bitcoin ETF products in the market today, but they use financial derivatives (eg futures) to track the price of Bitcoin, and can sometimes be unpredictable or inaccurate.
A new spot Bitcoin ETF will be backed by the cryptocurrency itself, and will be fully regulated, audited and monitored. It will look just like any other ETF.
Image source: Getty Images.
In short, the new spot Bitcoin ETF is just about the best holiday gift Santa could possibly give institutional investors. Until now, these investors have been wary of investing directly in crypto, due to its perceived risk and volatility. The spot Bitcoin ETF should solve these problems.
As a result, notable Bitcoin bull Michael Saylor, executive chairman and former CEO of MicroStrategy, recently said that this new financial product could be the biggest thing to hit Wall Street in 30 years.
The good news is that Securities and Exchange Commission (SEC) approval of the first-place Bitcoin ETF could come as soon as January 8, just days after the Santa Claus rally winds down.
There are several Wall Street firms that have filed applications, and they are working closely with the SEC to amend and update them as needed. At the very latest, approval should come by the end of the first quarter.
When approval does come, it could lead to a tsunami of new money flooding into Bitcoin. By some estimates, as much as $25 billion could flow into it, with much of it heading to the new spot ETFs. And all that new money could send the crypto soaring.
While the Santa Claus rally is largely short-lived and only lasts a few days, this ETF rally can be persistent and extended for the long term. We are talking about the largest institutional investors in the world, with trillions of dollars of assets under management, who decide to allocate part of their portfolios to Bitcoin.
The Bitcoin Halving
The second major event is the Bitcoin halving, now scheduled for April 2024. In a halving event, the reward paid out to miners for mining a single block on the Bitcoin blockchain is cut in half. The impact of the halving is generally considered bullish for the prospects of the digital currency.
In fact, the Bitcoin halving rally (much like the Santa Claus rally) is a well-documented phenomenon. There have been three previous halving cycles (in 2012, 2016 and 2020), and each resulted in a surge in the crypto’s price. In the last halving cycle, for example, Bitcoin finally reached its peak of almost $69,000.
Does the Bitcoin Halving Rally Really Exist? Even though this has happened three times, it could just be a statistical fluke. Correlation does not always imply causality. Or, it could just be an interesting psychological phenomenon, similar to the Santa Claus Rally.
However, there may be actual economic theory supporting the Bitcoin halving. By cutting the mining reward in half, the algorithm that controls the rate of new coin creation increases the relative scarcity. As long as demand remains the same or increases, the price of Bitcoin should rise.
Do you believe in Santa Claus?
Some might say that believing in the magical properties of the Bitcoin halving is akin to believing in Santa Claus. Right enough. But it can still be used as a predictor of the year ahead for crypto, similar to the Santa Claus Rally. If the halving effect doesn’t materialize, it could be a bearish year ahead for crypto — and perhaps for financial markets in general, given that Wall Street is so heavily invested in launching those new mock Bitcoin ETFs.
As economist Yale Hirsch — who “discovered” the Santa Claus rally in the 1970s — said, “If Santa should fail to call, bears might come to Broad and Wall.” So keep your eye on what happens to Bitcoin in early 2024. The future of your investment portfolio may depend on it.
Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
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