The weeks leading up to Christmas have historically seen a Santa rally in equity markets, as a sense of goodwill permeates the air. While this is typically just a seasonal blip, this year could be different. The United States Federal Reserve, the Securities and Exchange Commission, and BlackRock are all poised to deliver a holiday bonanza that could lead to a significant rally.
The Federal Open Market Committee (FOMC) concluded its second-to-last meeting of 2023 on Wednesday, deciding to keep interest rates steady. The Fed’s aggressive cycle of interest rate hikes has successfully tamed U.S. inflation from its peak of 9.1% in June 2022 to its current level of 3.7%. The Federal Funds Rate is now at its highest level since 2001, ranging from 5.25% to 5.5%.
However, despite the success of this campaign, markets are still concerned about the potential impact of higher rates or sustained rates at this level on triggering a recession in the U.S. The Fed shares these concerns and is now showing some softness towards inflation.
If the next Bureau of Labor Statistics inflation reading on November 14 shows a decline, we can expect to see a flood of money into risk assets as investors anticipate a future interest rate cut. This will have a positive impact on equity markets and even bond markets as yields fall and the yield curve flattens.
Crypto markets will also follow suit, with Bitcoin (BTC) closely correlated to mainstream markets. The approval of the first U.S.-based Bitcoin spot exchange-traded fund (ETF) will provide an additional boost. J.P. Morgan predicts that this approval will likely come before January 10. The rumors surrounding the approval of BlackRock’s application have already caused Bitcoin to surge back up to $35,000, a level it hasn’t seen since 2022.
The eventual approval of a Bitcoin spot ETF will further drive the prices of Bitcoin, Ether (ETH), and many altcoins. However, if investors adhere to the saying “buy the rumor, sell the fact,” the impact may not be as significant. We might even see a small dip before a sustained rally. Nevertheless, there is no doubt that approval will have a positive effect on the cryptocurrency market and has the potential to be the biggest driver since the conditions created by the Covid pandemic pushed BTC to top $60,000 in 2021.
There are a few potential obstacles that could hinder an end-of-year Santa rally, such as higher inflation in the U.S. or escalating tensions between Israel and Palestine. However, these factors don’t seem to be the current direction of travel.
Bitcoin has already experienced a significant rally this year. Despite falling to the $15,000 range after the FTX crash in November 2022 and starting 2023 at just over $16,000, its current level of $34,000 to $35,000 represents growth of over 100%. However, it’s important to note that only the smartest or luckiest traders can truly take advantage of Bitcoin’s extreme volatility, and many crypto investors are still recovering from losses.
As we approach the end of the year, it’s a good time to take a step back and look at Bitcoin and the crypto markets with fresh eyes. Even if we don’t see the anticipated Santa rally, we can still celebrate the fact that crypto has survived another challenging year and is ending on a high note.
Lucas Kiely, Chief Investment Officer of Yield App, oversees investment portfolio allocations and leads the expansion of a diversified investment product range. He has extensive experience in the financial industry, having held positions such as Chief Investment Officer at Diginex Asset Management and senior trader and managing director at Credit Suisse in Hong Kong. He was also the Head of Exotic Derivatives at UBS in Australia.
Please note that this article is for general information purposes only and should not be considered legal or investment advice. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.