The 2024 Santa Claus rally is about to start

Opinion by: Gracy Chen, CEO of Bitget

You’ve heard of the halvening and Uptober, but are you familiar with the other major calendar event when crypto is odds-on to go up? Say hello to the Santa Claus rally, bringing good tidings and cheer to traders worldwide. If all you want for Christmas is a screen-busting green candle for all your crypto bags, this is the seasonal event for you.

What’s the basis for believing in a Santa Claus rally, and is there any reason to think that 2024 will live up to previous years? Let’s examine the science behind this distinctively unscientific phenomenon.

The case for a green Christmas

The Santa Claus rally, typically observed during the final week of December and the first two trading days of January, has historically brought cheer to investment portfolios. But its origins are much older than crypto, predating even the Diffie-Hellman key exchange in 1976 that laid the foundation for crucial pair cryptography. 

In 1972, Yale Hirsch coined the phrase “Santa Claus rally” in his Stock Trader’s Almanac publication. Hirsch identified a pattern where the S&P 500 index tended to rise during the final December and early January trading days. This seven-day period has historically yielded positive returns, with the S&P 500 gaining an average of 1.3% since 1950 as of 2020. 

Why is this the case? What’s it got to do with crypto?

Those are rookie numbers

Several reasons have been postulated as to why the stock market tends to perk up at the tail end of the year, ranging from the rational to the distinctly irrational. The boring explanation is that investors may be looking to invest in tax-loss harvesting before year-end, selling underperforming stocks to offset capital gains and reinvesting in the market. Alternatively, fund managers might purchase high-performing stocks at year-end to enhance the appearance of their portfolios in annual reports.

A more benign suggestion is that with many investors on holiday, reduced trading volumes can lead to less volatility and a gradual upward drift in stock prices. This explanation can’t be easily applied to crypto since the markets are never closed. Thus, due to its vital retail component, the holiday season is more likely to increase rather than reduce volumes. It doesn’t automatically follow that less crypto volume automatically equates to greater volatility. The opposite is often the case, as bulls and bears attempt to pull the market in opposing directions.

Recent: Cardano price gains 88% — Is the ADA rally just getting started?

It’s fair to say that most of the rationale behind the Santa Claus rally doesn’t apply to crypto because — newsflash — crypto isn’t stonks. Despite significant institutional participation over the past year following the Bitcoin (BTC) exchange-traded fund approvals, the industry remains more volatile than traditional markets. The 1.3% seven-day increase Hirsch charted in 1972 wouldn’t register as much as a blip in crypto, where double-digit moves in a single day are the norm during bull markets, even for established assets such as BTC.

One theory that applies to the Hirsch model works neatly with crypto: The festive season brings increased consumer spending and a general sense of optimism, which can positively influence market sentiment. People have gotten their annual bonus, are bored, and have time. It’s the perfect time for a bit of speculation on the market.

Why a crypto Crimbo is on the cards

While the Santa Claus rally is a well-documented phenomenon in traditional stock markets, its presence in cryptocurrency is less clear. Cryptocurrencies, known for their volatility and 24/7 trading, don’t always follow equities’ seasonal patterns. A second trend can be applied to this model that has empirically proven a powerful predictor of a Santa Claus rally occurring in Cryptoland: whether or not the market is in a bull run.

It’s safe to say that crypto firmly checks that box right now, thus making a compelling case for a severe rally coming together as the year draws close. In late 2017, for example, BTC rallied by 68% over the two weeks spanning the New Year. Subsequent years have been more muted, in line with the prevailing market mood at the time. But then there’s 2024, which has already broken all crypto records. One wouldn’t bet against it closing out the year on a tear just to complete the clean sweep.

If traders buy into the Santa Claus rally thesis, they don’t need to create a prediction market to speculate on the likelihood — although nothing is stopping them. In crypto, financial freedom comes as a standard. A more intelligent strategy is filling one’s conviction bags before the year-end. Load up on the assets you believe in the most, and then sit back and let the prophecy unfold.

As 2024 closes out, the financial landscape presents a mix of optimism and caution. The global economy has shown resilience, with many sectors rebounding from previous downturns. Consumer spending during the holiday season is expected to be robust, bolstering market sentiment. The only potential dampener could be the escalation of global tensions in the Middle East or Ukraine. Still, barring a major macro event, there’s every reason to expect the current bull market to remain intact. 

Even if the Santa Claus rally proves to be a damp squib on this occasion, it’s no biggie: The bags investors have accumulated now are likely to stand them in good stead next year as the crypto market continues to grind higher. They don’t have to leave a glass of milk and some cookies out, but there’s no excuse for not being ready for Santa this Christmas.

Gracy Chen is the CEO of Bitget. Before this role, she held executive positions at XRSpace, and was an early investor in BitKeep.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.