The term “Santa Claus Rally” originated in the U.S. stock market and was first introduced by Yale Hirsch, the author of The Stock Trader’s Almanac. It usually refers to the last five trading days of the year and the first two trading days of the following year, during which U.S. stocks tend to perform positively. According to LPL Financial, over the past 70 years since 1950, the S&P 500 has shown a 78.9% likelihood of rising during these seven days, with an average gain of 1.33%. This notable market pattern has drawn significant attention from financial analysts.

Santa Claus Rally Statistics Over the Past 70 Years (Source: usmart.hk)

Research shows that since 2000, a strong performance in the S&P 500 during the seven days following Christmas often signals positive market trends in January and even for the entire year. Yale Hirsch further pointed out that if the “Santa Claus Rally” is absent, the U.S. stock market might face a bearish year. For instance, the bear markets of 2000 and 2008 occurred in years following the absence of a Santa Claus Rally. Looking back over the past 20 years, the Santa Claus Rally has failed to materialize six times. Of these, the S&P 500 declined in January in five cases, and only once did it achieve steady growth throughout the year. This validates the idea that the Santa Claus Rally can, to some extent, act as a barometer of market sentiment.

Analysis of Santa Claus Rally and Subsequent Price Trends (1999-2022) (Source: usmart.hk)

In the U.S. stock market, the Santa Claus Rally has become a prominent seasonal phenomenon and a key indicator for investors. However, with the rise of emerging fields like the crypto market, participants have started to examine whether the so-called “Santa Rally” also applies across markets. The crypto market is far more volatile than traditional markets, but during specific periods—especially holidays—its price volatility becomes particularly pronounced. This phenomenon may offer new avenues for exploring cyclical patterns within the crypto market.

Performance in the Crypto Market

Over the past decade, the “Santa Claus Rally” in the crypto market has shown inconsistent and sometimes contradictory patterns. Data from CoinGecko reveals that between December 27 and January 2 each year from 2014 to 2023, the total market capitalization of cryptocurrencies fluctuated between 0.69% and 11.87%. This volatility aligns with broader trends in the U.S. stock market, suggesting a potential correlation between the two.

Compared to post-Christmas rebounds, the week leading up to Christmas (December 19–25) has shown even more inconsistent performance. Over the past decade, there were five instances of growth during this period, with market returns ranging from 0.15% to 11.56%. However, there were also significant downturns, particularly in 2017, when the crypto market plunged by 12.12% following the bursting of the ICO bubble. Moreover, post-Christmas pullbacks in 2021 and 2022 saw declines of 5.30% and 1.90%, respectively.

Crypto Recorded ‘Santa Claus Rally’ 8 Times in Last 10 Years | CoinGecko

If the criteria are set for gains both before and after Christmas, only three years in the past decade met this expectation, indicating that more complex factors influence the crypto market’s fluctuations. The specific years are as follows:

As the representative of mainstream cryptocurrencies, Bitcoin saw price increases on seven occasions on Christmas Eve over the past 10 years, with gains ranging from 0.20% to 13.19%. Following Christmas, Bitcoin’s price increased five times, with gains between 0.33% and 10.86%.

However, price declines were also common before and after Christmas. The largest drop in Bitcoin’s price occurred before Christmas in 2017, falling by 21.30%.

This demonstrates that Bitcoin’s “Santa Claus Rally” is not a stable or predictable phenomenon, either in terms of fluctuation rates or frequency of occurrence.

Bitcoin Price Santa Claus Rally Over the Past 10 Years (Source：coingecko)

Santa Claus Rally Over the Last Three Years

A. 2022: No Signs of Santa Claus

The U.S. stock market faced its toughest year since the 2008 financial crisis in 2022. The Russia-Ukraine conflict erupted in February, soaring commodity prices and fueling inflation expectations. Simultaneously, the Federal Reserve’s tight monetary policies reduced liquidity, dampened risk appetite, and shifted markets from overvaluation to a more defensive stance. Sectors like utilities and consumer staples saw smaller losses, but inflation concerns, rate hikes, and fears of recession loomed throughout the year.

2022: U.S. stock markets declined sharply with no year-end recovery (Source: goldbuginvest)

The crypto market also faced headwinds in 2022. The collapse of the FTX exchange in November triggered a liquidity crisis, compounding the effects of ongoing Fed rate hikes. Bitcoin and Ethereum, among other major cryptocurrencies, remained sluggish during Christmas as cautious sentiment dominated. It wasn’t until two months later that prices showed signs of recovery.

November 2022: A black swan event led to months of declining BTC prices (Source: mytoken.io)

2023: Modest Optimism During the Holidays

In 2023, the AI boom fueled gains in U.S. tech stocks, with seven major companies contributing three-quarters of the S&P 500’s yearly growth. The market followed five main trends: “a stellar Q1, March banking concerns, strong Q2 growth, Q3 corrections from high interest rates, and a soft rebound in Q4.” By the end of the year, inflation had eased, the Fed’s rate hikes were largely over, and investor confidence returned, allowing a moderate Santa Claus rally during the holidays.

2023: AI-driven optimism supported a year-end stock recovery (Source: .mitrade)

In the crypto market, a mild rally occurred between Christmas and New Year. Analysts suggested that the deep deleveraging of 2022 reduced systemic risks, with major platforms operating smoothly and no significant Q4 disruptions. Some investors anticipated a stronger 2024 and began entering the market, injecting fresh funds that pushed crypto prices modestly higher.

2023: The crypto market remained steady without major fluctuations (Source: mytoken.io)

C. 2024: Santa Claus Rally Fizzles Out

In 2024, the Santa Claus rally appeared earlier in December but quickly faded, potentially influenced by the Fed’s final rate decision of the year. On December 18, the Federal Reserve kept interest rates unchanged at 0-0.25% and pledged to support the U.S. economy as needed. While this move briefly boosted markets, the gains didn’t last.

By January 2, 2025, the S&P 500 fell 2.84%, the Nasdaq dropped 3.75%, and the Dow Jones lost 2.09% over the holiday week. Most industries recorded losses outside of a 2.2% gain in the energy sector, signaling a muted year-end performance.

2024: No significant rally amid macroeconomic challenges (Source: Bloomberg)

The crypto market mirrored this trend. Bitcoin, for instance, dropped to $92,442 on December 23, 2024—its lowest in four weeks and 14.5% below its December 17 peak of $108,000. Although it briefly rebounded to $95,000, it fell again to $94,000 the following morning. Ultimately, Bitcoin’s price dropped by over 11% during the week, quashing hopes for a Santa Claus rally.

Bitcoin price trends during Christmas periods in recent years (Source: x)

What Drives the Santa Claus Rally?

Market Sentiment as the Key Factor

In the crypto market, the end of the year is a pivotal time for project teams to review progress and lay out future plans. It’s common for blockchain projects to release positive updates during this period, such as launching new features, announcing significant partnerships, or unveiling ecosystem expansions, all aimed at boosting market confidence. On top of this, the festive atmosphere often leads retail investors to adopt a more optimistic outlook, viewing the end of the year and the start of the next as an ideal moment to kick off a new bull run.

The holiday season’s shopping frenzy also plays a role. Crypto-related campaigns, like collaborative airdrops, year-end rewards, and community incentives, are concentrated at year-end, spurring investors to increase their holdings. This heightened activity further amplifies attention on Web3 and NFT ecosystems, combining to create a potential Santa Claus rally in the crypto market.

Holiday campaigns drive engagement during the Christmas season (Source: gate.io)

Macro Policy Effects

At year-end, governments often resort to economic stimulation measures like interest rate cuts and quantitative easing, creating a peak in global spending around the holiday season. This increased liquidity flows into the economy, fostering a more active market environment. After closing positions in traditional assets, many investors seek alternative markets offering higher returns.

The crypto market’s 24/7 availability, low entry barriers, and inherent volatility make it particularly attractive for those chasing short-term gains. When investors’ appetite for risk is typically higher during the holiday season, this “spillover effect” into the crypto market becomes especially noticeable.

The Federal Reserve announced a 25 basis point rate cut at the end of 2024 (Source: shmet)

Seasonal Capital Inflows

In both traditional stock and crypto markets, capital inflow tends to increase before Christmas—a phenomenon known as the “window dressing effect.” Traders often adopt bullish strategies, and fund managers look to enhance portfolio performance by increasing their holdings of high-performing assets during the holidays, hoping to carry strong momentum into the new year.

Year-end bonuses also drive investors to allocate more funds to crypto assets or DeFi projects, adding further buying pressure. With institutional traders typically on holiday during this time, retail and small-scale traders dominate the crypto market, leading to less resistance against price fluctuations and creating conditions for rapid price increases. In December, these dynamics are particularly pronounced, highlighting a seasonal pattern of capital inflows.

Liquidity trends in the crypto market tend to be bullish around Christmas (Source: coinglass)

Crypto’s Volatility vs. the Stock Market’s Stability

When it occurs, the crypto market’s “Santa Claus Rally” is often driven by internal dynamics. These include the resurgence of funds into popular altcoin sectors and the dominance of retail investors, whose emotions and reactions to hot topics significantly influence price movements. Additionally, trading volume tends to drop during the holidays, creating opportunities for short-term arbitrage in a low-liquidity environment. This amplifies price swings, making crypto market rallies less predictable and consistent.

On the other hand, the stock market is recognized for its stability. Institutional investors dominate the market, such as ETF managers and hedge funds. These long-term players allocate funds based on corporate fundamentals and macroeconomic forecasts, ensuring stability even during holiday periods. While trading volumes also decline in the stock market during the holidays, robust risk management and liquidity prevent major fluctuations. As a result, stock market trends during the festive season are typically steady and moderately upward.

Compared to Bitcoin, the stock market exhibits more consistent and stable trends (Source: macromicro)

The crypto market shows a weaker reliance on macroeconomic conditions, with holiday effects being just one of many factors influencing its price dynamics. Instead, internal sentiment and trending events often drive crypto market volatility. This makes the Santa Claus Rally in the crypto market unpredictable and inconsistent, with some years seeing no rally at all. On the other hand, the U.S. stock market, led by institutional investors, offers greater predictability during holiday periods. Thanks to its lower volatility and structured trading environment, the stock market often experiences moderate gains or recovery during the Christmas season.

Holiday Investment Advice

1. Understand Market Phases

Each market phase has unique characteristics. For instance, in a bull market, overly optimistic sentiment can drive investors to chase short-term profits. In contrast, rebounds during bear markets or uncertain economic times are often more fragile.

While the “Santa Claus Rally” may suggest future market trends, it remains a statistical likelihood rather than a certainty. Investors should assess the market’s current state comprehensively and use historical trends as one of several reference points while considering real-time market behavior and fundamental factors.

Macro factors can also significantly impact market trends, potentially disrupting seasonal rebound patterns. For example, central bank interest rate adjustments, unexpected geopolitical events, or changes in economic data could influence market sentiment and capital flows. Investors should avoid blindly following market rebounds to prevent falling into short-term speculative bubbles.

1. Manage Emotions in Decision-Making

The hype surrounding a “Santa Claus Rally” often leads to overheated market sentiment, especially for less-experienced investors, who may make impulsive decisions. Emotion-driven actions can result in over-trading or even missed investment opportunities.

To mitigate this, investors should establish clear profit-taking and stop-loss strategies ahead of the holiday season or similar market trends. This prevents emotional decision-making during market fluctuations. Additionally, technical analysis (e.g., price movements, support levels, and resistance levels) is recommended to evaluate opportunities comprehensively, rather than solely relying on seasonal trends and overlooking an asset’s intrinsic value.

1. Prioritize Risk Management

Risk management is vital, regardless of market trends. Crypto investors should allocate capital wisely and avoid excessive leverage. A staggered investment approach can help distribute costs and reduce the impact of short-term price swings.

Additionally, due to the crypto market’s high volatility, investors should consider project-specific risks, especially during on-chain activities, ecosystem developments, or the launch of new technologies. Conversely, if a “Santa Claus Rally” coincides with industry innovations (e.g., protocol upgrades or the release of new decentralized applications), this could generate additional attention and boost market activity and liquidity.

Conclusion

As an intriguing seasonal trend, the “Santa Claus Rally” has become a reference indicator in both the stock and crypto markets, helping investors anticipate potential market changes during the holiday season. However, this phenomenon doesn’t occur every year. For instance, the end of 2024 saw muted activity in the stock and crypto markets, with no clear rebound trend.

In rapidly evolving sectors like the crypto industry, influencing factors are more diverse, and technological advancements often disrupt traditional market patterns. Over-reliance on historical investment trends may overlook the latest market dynamics and miss emerging opportunities driven by current economic, technological, and policy factors. Historical trends provide clues, but investors must holistically evaluate the current market environment and future development trends to formulate comprehensive and rational trading strategies.