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Bitcoin Santa Claus Rally: How Often Does the Christmas Miracle Occur in Crypto

Last Updated November 3, 2023 11:25 AM
Andrew Kamsky
Last Updated November 3, 2023 11:25 AM

Key Takeaways

  • The Santa Claus Rally refers to seasonal upticks in asset prices during late December through early January.
  • While there’s a clear correlation between market sentiment and price action, it’s not always linear.
  • Negative sentiments can sometimes lead to significant price increases, suggesting contrarian investment strategies might be effective.
  • Sentiments like “Optimism Anxiety” and “Belief Denial” show the most varied actions, indicating these might be the most uncertain periods for Bitcoin investors.

The Santa Claus Rally is a phenomenon occurring in traditional stock markets, often observed as a surge in stock prices during the final weeks of December through the first couple trading days of mid-January. 

Given Bitcoin’s 24/7 trading environment, this article aims to explore if the price of Bitcoin really does lean bullish as seen in conventional markets over the Santa Claus Rally period. The following article will therefore try to see if a hypothetical purchase of Bitcoin on christmas day is more likely to see short term gains or not into January.

Why Does Santa Claus Rally Exist?

The “Santa Claus Rally” often occurs due to several developments that happen towards the end of the year, such factors include:

Tax Considerations

Investors may be adjusting their portfolios for tax purposes at the end of the year. Actively selling or buying to record advantageous tax losses or free up cash to pay tax obligations.

Holiday Optimism

The general optimism and good cheer around the holiday season might make traders more bullish.

Window Dressing

This refers to the practice where fund managers add well-performing stocks to their portfolios at the end of the year to improve the appearance of year-end reports.

Low Trading Volume

Many traders and institutional investors are away on vacation, leading to lower trading volume, which can result in exaggerated stock price movements.

Anticipation of the January Effect

This is another seasonal trading pattern where stocks, especially small caps, tend to perform well in January. Some investors might buy stocks in December in anticipation of this rally.

Santa Claus Rally: Bitcoin Historical Analysis

To judge the potential existence and profitability of the Bitcoin Santa Claus Rally, specific time frames and price movement percentages were taken into consideration. During this same period, market sentiment is also highlighted using the Net Unrealised Profit and Loss (NUPL chart) on LookIntoBitcoin. 

The NUPL uses on-chain data to demonstrate potential market participant emotions at a given moment in time which can be useful for forecasting Bitcoin price and where it may move next over time.

Key Considerations To Understand The Bitcoin Santa Rally

Time Frame

Analysis primarily revolves around the months of December until mid-January. With a hypothetical entry price on the 25th of December and a timeline horizon of three to four weeks.

Initial Action 

Taking a hypothetical “buy” action on Christmas Day.

Buy Signal Criteria

If Bitcoin’s price rises by at least 10% at least once, within one to four weeks after Christmas, it’s categorized as a “Buy” signal.

2022
2022

Sell Signal Criteria

A decline in price by more than 10% during the same period post-Christmas day  indicates a “Sell” signal.

2021
2021

Neutral Position

If the price remains relatively stable, fluctuating within a 10% range, it’s deemed “Neutral.”

2018
2018

Sentiment Analysis

Utilizing the NUPL chart from LookIntoBitcoin, this analysis compares the market sentiment during the festive season to understand the underlying mood and confidence levels of investors versus a buy, sell or neutral stance. 

This multi-faceted approach not only evaluates the price patterns but also delves into the psychological state of the market during the festive season. After analyzing this on-chain data versus price action some observations can be made.

Data Analysis

Before analyzing the price action versus the christmas period it is important to note that this analysis only takes into account a hypothetical short term horizon trade starting on Christmas day and closing around mid-January. 

Data Results

Bitcoin Christmas Period For Market Sentiment and Price Movements
Bitcoin Christmas Period For Market Sentiment and Price Movements

Sentiment and Action Correlation:

Euphoria

In 2013 and 2010, the market sentiment was in a euphoric state which resulted in a Santa Rally throughout christmas and mid-January and hence a “Buy” opportunity, suggesting that extreme optimism in the short run, over the christmas period, resulted in a short term gain.

 

Market Sentiment 2013
Market Sentiment 2013
2013
2013

Capitulation

In all three occurrences in the years 2022, 2014, 2011, this sentiment led to two “Buy” actions and one “Sell” action. This indicates that while despair often leads to selling, it can also be seen as a fantastic buying opportunity.

 

Market Sentiment 2014
Market Sentiment 2014
2014
2014

Belief Denial

Appeared four times in 2021, 2020, 2017, 2012. Interestingly, despite the sentiment of denial, the actions were split between “Buy” and “Sell,” indicating market unpredictability during these periods.

Optimism Anxiety

Occurred three times in 2019, 2016, 2015. The actions varied, between “Buy”, “Sell” and “Neutral” suggesting that mixed feelings of optimism and anxiety lead to diverse market reactions.

Hope Fear

Appeared once in 2018 with a “Neutral” action, suggesting that when the market is torn between hope and fear, investors might prefer to stay on the sidelines.

Bitcoin Price Movement Analysis Over The Santa Claus Rally Period

Bullish Price Movement

The highest price increase (65%) was observed in 2011, during a “Capitulation” sentiment, suggesting that sometimes the greatest buying opportunities come during periods of maximum pessimism.

Analyzing the data from the past decade reveals some interesting patterns. Over the specified period, Bitcoin exhibited a bullish Santa rally, characterized by a price surge of at least 10%, on six occasions, in the years 2022, 2020, 2019, 2013, 2012, 2011 with the average increase being 31% which is quite a significant move and opportunity for a quick trade in such a short period of time.

Bearish Price Movement

Contrarily, there were four instances where Bitcoin’s price dipped by more than 10%, indicating the absence of the anticipated Santa Claus Rally reliance. These instances occurred in the years 2021, 2017, 2015, 2014, with the average drop in price being 21%. This means that in specific years the Santa Bitcoin Rally will not materialize and a purchase on christmas day can see a trade fall 21% on average, in price within just three to four weeks.

Neutral Price Movement

Furthermore, the market remained relatively stable during two specific years, with price fluctuations contained within a modest 10% range, suggesting a neutral stance during those festive seasons. This analysis underscores the dynamic nature of Bitcoin’s performance during the year-end, with a mix of bullish, bearish, and neutral outcomes. With a slight edge towards a bullish posture on average and consistently acting in a volatile nature.

Sentiment And Price Movement Correlation

During years marked by “Euphoria,” Bitcoin experienced notable surges, underscoring the confidence investors felt. 

Similarly, periods characterized by “Optimism Anxiety” a mix of hope and caution also leaned towards price appreciation, suggesting that even in times of uncertainty, a latent optimism often drives the market upward. 

In a nutshell, whilst the past is not always a reflection of the future, positive sentiments like “Euphoria” and “Optimism Anxiety” often correlate with price increases, suggesting a strong sentiment-price relationship.

Sentiments like “Capitulation” and “Belief Denial” showed varied price movements, indicating other external factors might be at play during these periods.

Some years marked by “Capitulation” saw price rebounds, hinting at contrarian investment behaviors, while others witnessed declines. Similarly, “Belief Denial” periods have been unpredictable, with both rallies and downturns.

Bitcoin’s Potential Santa Claus Rally in 2023/2024: A Technical Insight

As the end of 2023 approaches, the crypto community is anticipating a potential Bitcoin Santa Claus Rally. 

Bitcoin Bullish Catalysts for 2023/2024

Bitcoin Halving 

Bitcoin is on the cusp of its next halving event, in April 2024. Historically, halvings have acted as significant bullish catalysts, reducing the supply of new bitcoins entering the market and creating a supply-side squeeze which might drive price increases in christmas time.

ETF Approval on the Horizon

The crypto community is eagerly awaiting the potential approval of a Bitcoin ETF. If approved, this could usher in a wave of institutional investment, further propelling demand. The timing of the ETF may come during the christmas period.

Geo-Macro Events

The global stage is full of events that could potentially bolster Bitcoin’s appeal as a ‘safe-haven’ asset, especially in the face of economic uncertainties.

Sentiment Shifts

Currently, the market sentiment hovers in the “optimism anxiety” phase, a mix of hope and caution as can be seen below. 

 

Current Bitcoin Market Sentiment | Source: LookIntoBitcoin
Current Bitcoin Market Sentiment | Source: LookIntoBitcoin

This sentiment is reflective of the market’s anticipation of the above fundamentals, coupled with the memories of the 2022 bear market. However, as the world inches closer to the festive season, projections indicate a possible shift towards the “belief denial” phase. This phase often sees the market in a state of internal conflict. 

What The Current Sentiment And Price Action Is Hinting In Relation To A Potential Bitcoin Santa Claus Rally

Assuming sentiment shifts towards the “belief denial” sentiment, Bitcoin’s price trajectory during the festive season could swing in any direction – bullish, bearish, or neutral. However, when analyzing past price data and considering the unique number of bullish events on the horizon, there’s a strong case for a bullish rally. 

The combination of the halving, potential ETF approval, and the prevailing sentiment suggests that Bitcoin might indeed witness a Santa Claus Rally, ending 2023 on a high note and ushering in a promising start until mid-January 2024.

Conclusion

In conclusion, while sentiment undeniably plays a significant role in shaping Bitcoin’s price movements, it’s clear that it doesn’t operate in isolation. The interplay of various external factors, from global economic conditions and regulatory shifts to technological advancements, intertwines with market sentiment. 

This intricate relationship introduces multiple layers of complexity, making Bitcoin’s price trajectory a multifaceted phenomenon that goes beyond mere sentiment analysis or Santa Claus Rallies. Having said that during this Santa Rally period Bitcoin does seem to be quite volatile and trading opportunities tend to surface more often than not. 

FAQs

What is the Santa Claus Rally in traditional markets?

The Santa Claus Rally refers to a seasonal uptick in stock prices typically observed from late December through the early days to mid-January. This phenomenon is attributed to various factors, including year-end tax considerations, holiday optimism, and anticipation of the January Effect.

How does the Santa Claus Rally relate to Bitcoin?

Given Bitcoin’s 24/7 trading environment, there’s interest in whether it mirrors the bullish trend seen in traditional markets during this period. By analyzing historical data, one can determine if buying Bitcoin on Christmas Day often leads to short-term gains into January.

How is market sentiment analyzed during the Santa Rally for Bitcoin?

Market sentiment during the festive season is taken using the Net Unrealised Profit and Loss (NUPL) chart on LookIntoBitcoin. This tool uses on-chain data to reflect potential market participant emotions, providing insights into Bitcoin’s price direction.

Have there been consistent patterns in Bitcoin’s Santa Claus Rally?

Historical analysis reveals mixed outcomes. While Bitcoin has shown bullish trends in certain years, there have also been instances of significant price drops or neutral movements. Sentiments like “Euphoria” often correlate with price increases, while sentiments like “Capitulation” show varied results.

Disclaimer

The information provided in the article on Bitcoin’s Santa Claus Rally is for informational purposes only and should not be construed as trading or investment advice. Before making any decisions related to trading or investing, it is essential to conduct your own research, consult with a qualified professional, and consider your risk tolerance. The author and publisher are not responsible for any decisions made based on the content of this article. Always exercise due diligence and caution when considering any financial move.

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