Predicting a Robust Santa Rally: Crypto Markets Amid Inflation and Interest Rates
Summary:
The article discusses the potential impact of seasonal cheer, the Federal Reserve's decisions, Securities and Exchange Commission measures, and the anticipation of the first US-based Bitcoin spot ETF on the year-end Santa Rally. Despite concerns about higher rates triggering a US recession, the Federal Reserve's aggressive interest rate hikes have successfully reduced a 9.1% inflation high to 3.7%. Crypto markets, strongly correlated with main markets, are poised for growth. A lower inflation reading could mean investors redirecting money into risk assets, hopefully leading to a cut in interest rates and positively influencing equity and bond markets. The approval of the Bitcoin spot ETF and an increase in Bitcoin's value add to the optimistic outlook, despite potential hurdles like heightened US inflation or global tensions. The author concludes by urging readers to appreciate crypto's resilience through a challenging year, regardless of the outcome of the Santa rally.
In the weeks preceding Christmas, there's a known phenomenon called the "Santa rally," where the common feeling of holiday cheer often leads to a surge in equity markets. Usually, this occurrence doesn't make significant headlines, but this year it finds itself under the spotlight as institutions like the Federal Reserve, the Securities and Exchange Commission and BlackRock take measures expected to stir an impactful seasonal rally.
After the Federal Open Market Committee (FOMC) concluded its next-to-last meeting for 2023, it delivered the decision to keep interest rates steady. As we observe, the rampant inflation, initially clocking at 9.1% in June 2022, has been reduced down to its current measure of about 3.7%, resulting from the bold initiative of the Fed to raise interest rates. This enduring cycle has elevated the Federal Funds Rate to somewhere between 5.25 and 5.5%, which is its peak since 2001.
Despite the evident success of this approach, the constant worry revolves around the danger of stagnant or escalating rates that can catalyze a U.S. recession. Now, the Federal Reserve echoes this sentiment as it takes a more lenient stance towards inflation.
Should the forthcoming Bureau of Labor Statistics inflation report on November 14 marks a downward trend, we can predict a considerable amount of money will be invested in risk assets. This anticipation for the subsequent rate change to be a reduction will undoubtedly benefit equity and bond markets, as decreasing yields will lead to a flat yield curve on the longer end of the spectrum.
Cryptocurrency markets will also align with this pattern, with Bitcoin (BTC) holding a strong bond to principal markets. Also, the impending greenlight on the first U.S.-based Bitcoin spot ETF, which JP Morgan forecasts before January 10, would serve as an additional booster.
The buzz created by speculations of BlackRock’s application approval boosted Bitcoin back up to the $35,000 level unseen since the early Terra Luna days of 2022. The Bitcoin, Ether (ETH), and broad altcoin markets will further gain momentum from this eventual approval, leading to a significant upside for cryptocurrency. In the long run, this development could be the biggest catalyst for cryptocurrency growth since the Covid pandemic propelled BTC beyond $60,000 in 2021.
However, there are potential hurdles in the form such as an unexpected increase in U.S. inflation before the year ends, or an escalation of tensions between Israel and Palestine, either of which could slow down an end-of-year Santa rally. Still, Bitcoin has witnessed a strong rally in the current year.
Despite a dip to the $15,000 range caused by the fallout of the FTX crash in November 2022 and a sluggish start of 2023 with slightly more than $16,000, Bitcoin has managed to surge to the $34,000 to $35,000 range, signifying a growth spurt of more than 100%. However, in the world of risky volatility, only the luckiest or savviest traders can make the most out of Bitcoin’s sharp price swings.
A gloomy mood looms over the crypto market as it's filled with investors nursing their losses from the past year. These circumstances might offer a view of the crypto market as the unlikely winner of 2023, as everyone gears up for the year-end while looking at Bitcoin with renewed optimism. Even without the much-awaited Santa rally, the crypto market has held its own in another challenging year, and there's much to celebrate about its resilience.
Lucas Kiely, with his impressive body of work as a chief investment officer of multiple organizations and senior trader, currently leads the Yield App's portfolio allocations and diversification of investment products.
This report is provided just for informational purposes and should not be misconstrued as a substitute for legal or investment consultation. The author's viewpoints do not reflect the ideas or opinions held by Cointelegraph.
Published At
11/1/2023 10:53:19 PM
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