Traders often predict these two catalysts will drive crypto prices up or down in December. Is this a ‘Santa Claus rally‘ and tax loss harvesting?
The two terms are older than cryptocurrency, commonly discussed by stock traders at the end of each financial year. Just how accurate are they for making stocks or crypto price predictions?
Pentoshi On Crypto Prices Narratives
One of the most popular crypto Twitter accounts, @Pentosh1 told his followers to expect those two ‘narratives‘ in December.
Furthermore, he added Wall Street bonuses, as did many in the replies. Also not excluding the Chinese New Year as a 2023 narrative for crypto prices. Many holders around since the 2018 bear market will recall these ideas.
While he didn’t expand on that tweet thread yet this November, Pentoshi has been critical. He has been critical of this type of fundamental analysis in previous years. He says ‘just trade the charts’ and ‘what matters is the trend’.
Crypto Santa Claus Rally
Last Christmas for example, Pentoshi tweeted the image below and his comments that bad traders rely on narratives.
Investopedia explains the justification for a Santa Claus rally. It explains it as ‘general feeling of optimism and seasonal happiness on Wall Street, and the investing of holiday bonuses’.
The theory dates back to Yale Hirsch’s Stock Trader’s Almanac written in 1972. However thats not all thats happening this season of yuletide.
There is Tax harvesting. Tax loss harvesting is defined as selling assets to ‘limit the amount of taxes due on short-term capital gains. Gains which are generally taxed at a higher rate than long-term capital gains’.
Meanwhile, last December Pentoshi noted one narrative was that institutions would sell until the last business day of the month. Afterwards, the crypto markets would rally. However the Bitcoin price action was bearish at the 2021 close, with the overall macro downtrend being the deciding factor.
In July 2022 Pentoshi made an interesting prediction that more funds ‘will blow up.‘ This is the kind that focus on these type of crypto price narratives. Russian Oligarchs, Tax harvesting, etc. Most of these narratives came from the same VCs, TradFi guys. And funds that blew up or will blow up in a few months.
Bitcoin Prediction Following FTX Collapse
Earlier this month it emerged Sam Bankman-Fried’s Alameda Research were insolvent and lost $3.7 billion. The FTX exchange linked fund were previously imagined by many to be made up of expert traders and quants.
Heading into December, Bitcoin is trading sideways, stuck in a 2% range at the time of writing around $16,500.
Since hitting an all-time high of $69,000 on Binance, Bitcoin has crashed as low as $15,476. This is happening one year on. A 78% correction.
Well, here’s the downside. Some analysts predict the $12-$14k level could be tested as support.
The 2019 high was $13,970. This was plotted on the Bitcoin price chart above, just above the 2018 yearly open of $13,715. Pentoshi is unsure if Bitcoin will see a capitulation event and crash that low.
He’s predicting more sideways accumulation, for an extended period of time – neither a Santa Claus rally nor tax loss selling. To the upside, some traders predict a bear market rally could take the Bitcoin price up. They predict that the coin will go as high as high as the 2021 lows for a bearish retest. The June 2021 monthly wick hit $28,805.