As the holiday season approaches, the cryptocurrency world is buzzing with anticipation for the annual “Santa rally.”
A confluence of factors, including a potential spike in institutional investment, regulatory clarity, and temporary improvement in microeconomic conditions, might lead to a significant market bounce this year.
The Federal Open Market Committee (FOMC) ended its penultimate meeting for 2023 this week, preferring to keep interest rates unchanged.
In the United States, inflation has dropped significantly, from a peak of 9.1% in June 2022 to its current rate of 3.7%, owing largely to the Federal Reserve’s forceful interest rate hikes. These efforts raised the Federal Funds Rate to a range of 5.25-5.5%, its highest level since 2001, yet it remains relatively low in comparison to the last century.
Despite the apparent success of this approach in containing inflation, there is widespread anxiety about the likelihood of a recession being triggered by a prolonged period of high interest rates.
As a result, the Federal Reserve looks to be taking a more cautious approach to inflation management, and it may exercise caution when it comes to further interest rate rises.
This shifting strategy illustrates the delicate balance that the Federal Reserve is attempting to achieve between controlling inflation and protecting the broader economic environment from any unexpected downturns. This change in strategy may improve market sentiment and pave the way for a market rally at the end of the year.
Increased Institutional Investment
The significant price jumps that characterized the previous bull market were primarily driven by an increase in investor confidence and increased interest from institutional participants. Major financial institutions and hedge funds began to view Bitcoin (BTC) as more than just a speculative asset, but also as a potential inflation hedge and store of value.
Furthermore, the emergence of futures cryptocurrencies ETFs and funds made the market more accessible to institutional investors.
According to a Celent survey, 91% of institutional investors are keen to invest in tokenized assets, indicating substantial demand. With firms like MicroStrategy extending their crypto holdings, the upcoming season may see an even larger influx of institutional capital into the crypto space.
According to EY-Parthenon research, most institutional investors trust in the long-term potential of blockchain technology and crypto assets, driving them to plan significant digital asset investments in the next few years.
The anticipated approval of the first US-based Bitcoin spot exchange-traded fund (ETF) before January 10, as predicted by J.P. Morgan, could inject additional energy into the economic landscape.
Recent speculations concerning the approval of BlackRock’s ETF application have heightened the expectation surrounding this prospective development, culminating in a comeback of Bitcoin’s price to $35,000. If this approval is granted, it has the potential to cause a price increase in the cryptocurrency market, even if it is just brief.
Clarity in Regulatory Terms
As the cryptocurrency sector gained traction in 2020, regulators around the world took notice. Some nations simply prohibited digital assets, while others took a more measured approach, building regulatory structures to oversee digital assets.
In 2021, US regulatory changes, particularly the SEC’s stance on cryptocurrencies, were at the center of global debate. Various nations established exact legislative frameworks and laws governing cryptocurrencies, ICOs, and DeFi platforms this year, resulting in significant regulatory advancements.
The push to create central bank digital currencies (CBDCs) gained traction as well. The European Union passed the Markets in Crypto-Assets (MiCA) regulatory framework this year, ushering in a new age of comprehensive crypto rules in the area.
A significant moment occurred when a US Circuit Judge confirmed Ripple’s compliance with the law involving XRP sales on public exchanges, resulting in a legal victory for the cryptocurrency sector.
The judgment did clarify, however, that Ripple had broken securities regulations in its sales to institutional customers. Furthermore, members of the United States Congress lobbied for the SEC Chair to approve spot Bitcoin listings.
Furthermore, the US Securities and Exchange Commission has filed two major lawsuits against Binance and Coinbase. Regardless of the final court conclusion, these efforts are poised to provide additional regulatory clarity and serve as the cases that define how cryptocurrencies are governed in the United States.
While resolution of these legal issues is unlikely by the end of the year, any significant advances in the procedures might potentially cause a price increase in the cryptocurrency market.
The cryptocurrency community is excited about the possibility of spot Bitcoin ETFs, improved economic considerations, and clearer regulatory frameworks. Against this backdrop, the bitcoin market is prepared for an interesting holiday season, with a “Santa rally” possible.
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