Will Bitcoin Reach 35K by Christmas? Thank Jerome Powell if it Does

What is a Santa Rally?

Historically, a Santa rally occurs in the weeks leading up to Christmas when a collective feeling of goodwill is reflected in the stock markets. This is usually a short-term phenomenon and nothing to write home about. But this year, a far more significant rally could be in the offing as the US Federal Reserve, the Securities and Exchange Commission and BlackRock are all set to bring in some holiday cheer.

The Federal Open Market Committee (FOMC) concluded its penultimate meeting of 2023 on Wednesday and decided to keep interest rates unchanged. We know that US inflation has declined from its June 2022 peak of 9.1% to the current level of 3.7%, thanks to the Fed’s rigorous interest rate hikes, which have pushed the Federal Funds Rate to 5.25-5.5%, its highest level since 2001.

However, although this strategy has been successful, markets are still worried about the possibility of higher rates, or even rates staying at this level, triggering a recession in the US. The Fed also now shares these fears to some extent as it softens its stance on inflation.

If the next Bureau of Labor Statistics inflation reading on Nov. 14 shows a decline, we can expect money to flow into risk assets as investors anticipate the next interest rate decision to be a cut. This will, of course, have a positive impact on both equity and bond markets, as yields fall and the back end of the yield curve flattens.

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Crypto markets have been strongly correlated to main markets, with Bitcoin (BTC) being no exception. Speculation of the potential approval of a U.S.-based Bitcoin spot ETF by Jan. 10, as predicted by J.P. Morgan, has generated excitement and pushed Bitcoin up to the $35,000 range, a level not seen since pre-Terra Luna days of 2022. This approval could provide a further boost to not only Bitcoin, but also Ether (ETH) and other altcoins, although it may not be as significant as the hype suggests. On the other hand, a Santa rally could be derailed by higher inflation in the U.S. or a worsening of the Israel-Palestine conflict.

Bitcoin has seen impressive growth this year, rising from $16,000 at the start of 2023 to $34,000 to $35,000 today, representing an increase of more than 100%. Nevertheless, many crypto investors are still in the red in terms of year-on-year performance, proving that it takes skill or luck to take advantage of Bitcoin’s extreme volatility.

For FTX investors, for example, while there are now hopes some will get their Bitcoin, Ether, and other tokens back, most will face somewhat of a Pyrrhic victory as they contemplate the losses of up to 70%. This has created a generally pessimistic atmosphere in the crypto market, which could have been a winner in 2023.

As we come to the end of the year, it is wise to look at Bitcoin and crypto markets with new eyes. Even if we don’t experience the much-anticipated Santa rally, we can still be pleased that crypto has made it through another difficult year and is ending on a positive note.

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