Historically, Santa’s rally occurs in the weeks leading up to Christmas when a collective feeling of goodwill spreads to the stock markets. This is usually a seasonal point and nothing to write home about. But this year, we could see a much more significant rally with the US Federal Reserve, the SEC and BlackRock lining up to provide major holiday cheer.
The Federal Open Market Committee (FOMC) ended its penultimate meeting of 2023 on Wednesday, deciding to keep interest rates steady. As we know, US inflation has been tamed from a high of 9.1% in June 2022 to its current level of 3.7% thanks to the Fed’s aggressive rate hike cycle that has brought the federal funds rate to 5.25-5.5% – It is its highest level since then. 2001.
However, although this campaign has undoubtedly been successful, markets remain deeply concerned about the possibility that high interest rates, or even sustainable rates at this level, will lead to a recession in the United States. Economic inflation.
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If the Bureau of Labor Statistics’ next inflation reading on November 14 shows a downward move, we can expect to see money flow into risky assets as investors expect the next interest rate decision to be a cut. This will of course have a positive impact on equity markets, and even bond markets, as yields fall and the back end of the yield curve flattens.
Gundlach: I think the CPI will fall based on the inflation model
– * Walter Bloomberg (@DeItaone) November 1, 2023
Cryptocurrency markets will follow suit, with Bitcoin (BTC) remaining strongly linked to major markets. However, what will provide an additional boost is the approval of the first spot bitcoin ETF in the US – which will likely come before January 10, JPMorgan expects. This is underscored by the excitement generated by BlackRock approval rumors over the past few weeks, sending Bitcoin back to $35,000: a level it has not enjoyed since the pre-Terra Luna days in 2022.
The final approval will provide further momentum to Bitcoin, Ethereum (ETH), and large swaths of altcoin markets. However, if investors follow the old adage, “buy the rumour, sell the truth,” it may not be as big of a deal. We may also see a small decline before a more sustained rise. However, there is no doubt that the approval will be positive for cryptocurrencies. In fact, it has the potential to be the biggest driver of cryptocurrency markets in the long term since the conditions created by the Covid pandemic took the price of Bitcoin to $60,000 in 2021.
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Possible reasons in these actions include rising inflation in the United States before the end of the year, and the possibility of escalating tensions between Israel and Palestine. Either of these things could halt Santa’s end-of-year march — but that doesn’t appear to be the direction of travel at the moment.
In fact, Bitcoin has already enjoyed a major rally this year. While the fallout from the FTX crash in November 2022 saw BTC drop to the $15,000 range and start 2023 at a paltry price of just over $16,000, today its level of $34,000 to $35,000 represents over 100% growth. Of course, only smart or lucky traders are able to benefit from the extreme volatility of Bitcoin. On an annual basis, many cryptocurrency investors are still suffering losses.
For FTX investors, for example, while there are now hopes that some will recover bitcoin, ether and other tokens, most will face somewhat of a pyrrhic victory as they stare at losses of 60% to 70%. This explains the generally pessimistic mood in the cryptocurrency market, which may otherwise look like a winner in 2023.
As we approach the end of the year, it would be helpful for all of us to take a step back and look at the Bitcoin and cryptocurrency markets with fresh eyes. Even if we don’t get the long-awaited and perhaps deserved Santa gathering, we can celebrate the fact that cryptocurrencies survived another challenging year and finished on a high.
Lucas Kelly He is the Chief Investment Officer at Yield App, where he oversees portfolio allocations and leads the expansion of its diverse portfolio of investment products. He was previously Chief Investment Officer at Diginex Asset Management, and Senior Trader and Managing Director at Credit Suisse in Hong Kong, where he ran QIS and structured derivatives trading. He was also head of exotic derivatives at UBS in Australia.
This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.