The crypto market is up for a rally ahead of Christmas, which analysts are calling the “Santa Rally” despite the ongoing dip leading to more than $1 billion in liquidations in the last 24 hours. The recent downturn has caught the market off guard as it was expecting a continuation of the bullish movement.
However, an unexpected sell-off triggered the biggest liquidation events for long positions, which reflects the volatility of the market. Most analysts have blamed the Federal Reserve’s recent hawkish remarks and declaration of lesser rate cuts in 2025 for this.
But this has triggered speculations of buying the dip, the highest in recent months.
The Federal Reserve's comments show an aggressive monetary policy stance despite Trump's pro-crypto promise. This includes higher interest rates and extended tightening measures for the crypto market.
Although these actions are taken to curtail inflation, they eventually affect investors' sentiments and reduce liquidity in sensitive markets like the crypto market. The Fed Chair Jerome Powell’s remarks on December 18 have made crypto traders cautious as many are now reevaluating their crypto portfolios in fear of macroeconomic impacts.
There are sudden changes in market sentiments as seen in the $1.02 billion liquidations that happened yesterday, of which $856.66 million were long positions. Bitcoin has been hit the hardest as it dropped 3.36% to the $100,000 psychological level. The December 19 liquidation events is part of a series of sharp declines this month that wiped out $300 million and $1.7 billion in leveraged positions on December 5 and December 10, respectively.
Short-term angst or price correction?
The lead crypto analyst of Swyftx, Pav Hundal, attributed this sell-off to the market getting complacent about the bullish momentum. . “The market was unprepared for bad news, resulting in indiscriminate selling,” said Hundal. However, the crypto analyst isn't writing off the bullish outlook as he says the downturn is temporary, a “short-term angst,” not a deep price correction.
Analysts predict a recovery is coming with a “Santa Rally” lying around the corner—the traditional year-end surge where traders flock to purchase Ethereum, Bitcoin, and other tokens in huge numbers.
Another analyst, Jamie Coutts from Real Vision, highlighted a buying opportunity amidst the current downturn conditions, which is supported by historical patterns.
Meanwhile, crypto analyst Caleb Frazen pointed out similar pullbacks in Bitcoin during the last bull run. Franzen highlighted how each of the nine pullbacks observed in the last 16 months was followed by new highs. According to Franzen, the current downturn is just a characteristic of bill markets.
More Price Volatility Ahead of Trump's Takeover?
Analysts have warned of more price volatility as the rate for Donald Trump’s takeover of the US presidency nears. Trump is slated to enter the White House as the 47th US President on January 20 next year with a pro-crypto stance, including the formation of a US Bitcoin Strategic Reserve.
Hundal warned that one side is likely to be on the “wrong side of the bet” as the crypto market remains divided over the impact of Trump taking office. Hence, price volatility is likely as the Trump administration makes its intentions clear.
Santa Rally Still in Store?
As per analysts, the odds are still high for a Santa Rally and continuation of the bullish market as a “bout of profit taking and a little fear is understandable and perhaps a healthy removal of some of the froth in the market and sentiment.”
Binance has said this Santa Rally could be unique for the crypto market, underlining key things to watch out for as investors gear up for accumulation ahead of the April Bitcoin halving event and retail activity soaring with the possibility of smaller altcoins to gain. There's also a possibility of greater price swings due to low institutional activity while crypto regulations announcements are expected to sway the market.