Is a Christmas rally on the horizon for the crypto markets?

For the past few weeks, the persistent speculation of a Christmas rally has been circulating in the crypto markets.

It would be a small and brief bullrun that could start in traditional markets and continue in the cryptocurrency markets as well. 

Moreover, for several days now, the trend of the price of Bitcoin has been primarily influenced by the American markets. Therefore, if a Christmas rally on the US stock exchanges were to occur, it would be quite likely that a similar rally would also be generated in the crypto markets. 

For now, it remains merely a hypothesis without any real confirmation yet, but there are several clues that suggest this possibility could at least be plausible. 

Christmas Rally: The Three Key Clues for the Crypto Market

The First Clue: Liquidity

On October 1st, the USA experienced the longest government shutdown in history, lasting until November 12th. 

According to official Fed data, since the beginning of the shutdown until the end of October, the volume of deposits in government accounts has increased by over 150 billion dollars. 

In the first week following the end of the shutdown, they decreased by only 12 billion, and we will have to wait until tomorrow evening to get the updated data for the following week, which is the current one. 

This increase in dollars parked in US government accounts, rising in just under a month and a half from 804 to 957 billion, may have caused a minor liquidity crisis in the American financial markets. 

During the same period, the main US stock index, the S&P500, experienced two corrections: a small and sudden one on October 10, and then a more substantial one between the end of October and last week. 

Last Friday, however, a rebound began that still appears to be ongoing. 

This hypothetical minor liquidity crisis might therefore have ended, or at least be in the process of winding down, although confirmation will have to wait until tomorrow evening. 

It should be noted that if all the $150 billion accumulated in excess by the US government during the shutdown were to be injected into the markets in the coming weeks, the rebound could be followed by a genuine small bullrun. 

The Second Clue: Interest Rate Cuts

Wednesday, December 10, the Fed is expected to cut interest rates by 25 basis points for the third consecutive time. 

On the FedWatch by CME, this scenario is now considered likely at even 85%, with a pause in January, when there is a 68% probability that the Fed will not cut rates. 

This rate cut is actually already practically priced in by the financial markets, but until last week it was uncertain. Furthermore, it is expected to have consequences on the bond market that cannot yet be priced in, and will only be after the actual eventual decision. 

This means that starting from December 11, there could be an additional shift from risk-off to risk-on, which should benefit both the stock market and the crypto market. 

The Third Clue: The Dollar Index

In theory, the strongest clue on which the hypothesis of the Christmas rally can be based is related to the potential trend of the Dollar Index. 

It should be noted that in the medium term, the price trend of Bitcoin tends to be inversely correlated with that of DXY, and that the overall trend of crypto markets often tends to be closely aligned with that of BTC. 

The fact is that since the end of July, the trend of the Dollar Index has been following a pattern remarkably similar to that of late 2017, which was the first year of Donald Trump’s presidency during his initial term in the White House. 

If it continues to follow that trend, between tomorrow and next Monday, DXY could begin a new bearish period that might occur in three successive phases interspersed with two minor rebounds. 

The first phase could indeed begin in the coming days and last until just before mid-December, potentially triggering a Christmas rally for Bitcoin and the crypto market. 

However, if by the end of the year the first of the two small rebounds of the Dollar Index occurs, the Christmas rally might also be interrupted before Christmas, and resume only at the beginning of January. 

In that case, it would not have been a true Christmas rally, but rather a half Christmas rally followed by another half rally at the beginning of the year. 

The Bubble Hypothesis

It must be noted, however, that at the end of 2017, a colossal speculative bubble inflated within a few weeks on Bitcoin and the crypto markets, even while the Dollar Index was experiencing a slight rebound. 

This necessitates not ruling out the possibility of a single Christmas rally during which a speculative bubble could inflate, somewhat similar to the one at the end of 2017, although likely on a smaller scale. This could then be followed by its burst in the early months of 2026, even with the Dollar Index potentially still declining.