Santa Rally Fades as Bitcoin Hits Lowest Price in a Month

The price of Bitcoin dropped below $93,000 on Monday, marking its lowest point in nearly a month, last seen on November 26. This decline comes as the anticipated Santa Claus rally in the cryptocurrency market fails to appear, with crypto charts reflecting a stark red, similar to Santa's suit.

Only a week prior, Bitcoin was trading above $108,000, reaching a record high as the holiday season approached. However, a more cautious tone from the Federal Reserve regarding future interest rate cuts has negatively impacted the asset's price.

Generally, lower interest rates benefit Bitcoin and other high-risk assets such as stocks. When borrowing costs decrease, investors tend to flock to these riskier options in search of higher returns, instead of safer investments like cash or U.S. Treasuries.

Recently, the Federal Reserve reduced its benchmark interest rate by 25 basis points to a target range of 4.25% to 4.5%. However, officials indicated that there would be fewer rate cuts next year than previously expected, shifting the anticipating from four cuts to just two.

Inflation has significantly slowed down since hitting 9.1% year-over-year in June 2022, according to the Consumer Price Index reported by the U.S. Bureau of Labor Statistics. The latest data shows inflation at a 2.7% increase for the twelve months leading to November, still surpassing the Fed's target of 2%.

With these changes, the Federal Reserve's approach has become less restrictive, as stated by Chairman Jerome Powell. He noted, "With today’s action, we have lowered our policy rate by a full percentage point from its peak, allowing us to be more cautious regarding future adjustments to our policy rate."

The Fed's hawkish stance has led to a 13% drop in Bitcoin's value over the past week. Ethereum and Solana have also seen significant losses, falling 18% and 15% respectively, now priced at $3,300 and $186 according to data from CoinGecko.

In contrast, the altcoin XRP has held its ground better, with a 12% dip to $2.18 during the same timeframe. Meanwhile, meme coins have faced steeper losses, with Dogecoin seeing a 22% decline to $0.31.

Typically, a Santa Claus rally is expected during the final five trading days of the year and the first two trading days of the New Year. Although the stock market will close on Christmas Day, cryptocurrency trading continues uninterrupted.

Despite expected lower trading activity in the crypto market for the rest of the year, there are still some hopeful predictions. BRN analyst Valentin Fournier noted that while volatility might decrease due to a reduction in institutional trading and subdued retail volumes, a sudden market rebound remains a possibility. He stated in a recent note, "While the ongoing negative momentum could lead to small losses, a sharp rebound remains possible."

Edited by Andrew Hayward

Bitcoin, Fed, Rally