What Does ‘Santa Rally’ Mean for Crypto Trading?

The holiday season comes with a lot of anticipation from crypto traders and investors alike due to the phenomenon known as the “Santa Rally”. To new traders, the Santa Rally may seem like an imagination. However, seasoned traders can recognise that the Santa Rally is a real phenomenon that has been observed in the crypto market for decades. This trend is often attributed to various factors such as the holiday cheer and so on. But what really is a Santa Rally and what impact does it have on the crypto market?

In this blog post, we will uncover the mystery that is the Santa Rally and see the impact it has on crypto trading.
Let’s dive in!

What is a Santa Rally?

A Santa Rally is a period in the crypto trading market that is marked by sustained price increases in the financial market. It usually occurs during the last five days of December and the first two days of January. It is also known as the “Year-end rally”.

Experts attributes thiphenomenon is attributed to the following factors:

• Positive holiday cheer: During the holidays, investors and traders are feeling optimistic. This leads to higher buying activities which further results in higher prices.
• End-of-year bonuses: Many investors and traders receive bonuses at the end of the year. These bonuses are then invested into the crypto market which results in a higher demand for assets and in turn, increase in prices.
• Tax-loss harvesting: At the end of the year, many investors tend to sell losing positions in order to save their losses and offset gains. They then reinvest in other assets which further leads to increase in demand of said assets and surge in their prices.

History of the Santa Rally

The Stock Trader’s Almanac first introduced the idea of the Santa Rally. Yale Hirsch followed stock market history and patterns and founded the Stock Trader’s Almanac in 1968. The Almanac is responsible for introducing the public to statistically predictable market phenomena such as the “Santa Rally”.

The Santa Rally dates as far back as the 1950s and has been observed in the trading market for decades since. According to Yahoo finance, since the beginning of this phenomenon, the S&P 500 index has historically performed well during this period. In the last five trading days of the year and the first two trading days of the next year, the S&P 500 index has an average gain of 1.3% and has been positive 79% of the time.

Santa Rally: What to expect in the crypto market

It is typically associated with the stock market. However, it can also have an impact on the crypto market that may affect traders’ and investors’ decisions. Therefore, it is worth having a knowledge on how the Santa Rally affects the crypto market.

Here are some ways in which this phenomenon can affect crypto markets:

Increased volatility

Prior to the Santa Rally, crypto markets have been very volatile. However with the Santa Rally, the volatility is markedly increased. As investors and traders get more optimistic about the market, they take more risks. This leads to increased price swings and higher risks with trading.

In anticipation of this Rally, the activity of traders suggests that the price of Bitcoin may reach another all time high before the end of the year. In lieu of this, bettors have wagered that there is a 16% chance that the price of Bitcoin will pass $110,000 before the end of the year. An end-of-year payday might just be around the corner.

Buying activity

It causes an increase in the buying activity in the crypto markets. Most especially popular assets like Bitcoin and Ethereum. This can drive up prices of crypto assets which poses a great opportunity for traders and investors.

Market sentiment

The market sentiment around the Santa Rally is usually bullish. This is as a result of the positive market sentiment investors and traders have on crypto assets. The positive market sentiment coupled with the increase in crypto asset prices creates a positive cycle in the trading market. This cycle is such that the positive sentiment creates a price increase, and the price increase further strengthens the positive sentiment.

Conclusion

The Santa Rally is a market phenomenon that majorly affects the stock market but has significant effects on the crypto trading market. During this trend, the S&P 500 index increases by 1.3% and is 79% positive. The historical data supports this phenomenon and that is why it is important for investors and traders to capitalize on it to make the most out of the trading season. By understanding the theories that explain this trend, one can easily navigate the crypto market at the end of the year.

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