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Ever heard of the "Santa Claus Rally"? Coined by Yale Hirsch and borrowed from traditional market terminology, this phenomenon describes a year-end increase in asset prices, more specifically the last 5 trading days of December and first 2 of January. In the crypto market, there have been 5 Santa Claus Rallies in the last 10 years, while 8 rallies were recorded in the pre-Christmas period from 19 - 25 December. During these rallies, total crypto market capitalisation has seen gains ranging from 0.2% to an impressive 11%.
Let’s explore the validity of this concept, and how it pertains to the crypto markets.
Pre-Christmas vs. post-Christmas trends
The term "Santa Claus Rally" might sound like wishful thinking, but the numbers tell a more nuanced story. Over the past ten years, the crypto market has demonstrated an interesting pattern of performance during the holiday season, with market capitalisations showing unexpected movements that defy simple predictions.
Interestingly, pre-Christmas Bitcoin rallies (19 to 25 December) were the most frequent, with gains ranging from a modest 0.2% to 13%.
However, when the BTC market turned bearish, pullbacks were typically more severe after Christmas than before. The largest dip, a wild 21%, occurred in 2017 following the ICO boom. Pre-Christmas declines, meanwhile, were more moderate, with decreases of 6% in 2017 and 1% in 2019.
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Years with double rallies
Bitcoin, typically illustrating broader market trends, has delivered equally compelling year-end performances. Over the past decade, it recorded pre-Christmas rallies 8 times, with its standout surge occurring in 2016, with a 13% increase in the week leading up to Christmas and 10% gains post-Christmas.
On the flip side, 2017 marked a dramatic downturn, with Bitcoin's price plunging 21%, highlighting the market's inherent volatility.
Interestingly, only three years (2016, 2020, and 2023) witnessed consistent crypto market gains both before and after Christmas as well as overall in the month of December. Similarly, in 2023, while slight, the crypto market rebounded from bearish territory with gains of 1% before Christmas and 4% after, making a total of 12% gains over the entire month.
The broader December effect
Zooming out, the month of December paints a more dynamic picture. Half of the past decade saw December-wide market increases ranging from 12% (2023) to a dramatic 47% (2020).
On the flip side, during bearish Decembers, losses ranged between 4% and 17%.
Bitcoin and the Santa Claus effect
Looking over the numbers, from 2014 to 2023, Bitcoin has seen 5 Santa Claus rallies, peaking at 11% in 2020. However, Bitcoin also faced notable declines, including a dramatic 21% drop in 2017 during the post-Christmas period.
On average, speculating on Bitcoin during Santa Claus rally periods would have yielded modest returns of about 1.3% pre- and post-Christmas. In comparison, holding Bitcoin throughout December delivered a much higher average return of 9.5%, illustrating the variability and inconsistency of the Santa Claus effect.
Takeaway: a mixed bag of opportunities
The Santa Claus Rally remains an inconsistent occurrence in the crypto space. While historical data provides intriguing patterns, traders should approach this trend with cautious optimism, as past performance is no guarantee of future results.
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