Bitcoin Set for Santa Rally as Systemic Leverage Drops: Coinbase

“A rocky November may have set the stage for a December to remember,” stated Coinbase Institutional on Tuesday.

The firm stated that its “systemic leverage ratio,” which tracks purely speculative positioning, has stabilized at around 4% to 5% of total market capitalization, and is down from 10% this summer.

The “cautious optimism” has come about because “speculative excess has been flushed out,” it stated, explaining that the market structure is healthier now.

“Lower leverage = healthier market structure + less vulnerability to sharp drawdowns heading into year-end.”

December Shaping Up For Santa Rally

Bitcoin experienced its second-worst November in history, recording a 17.7% loss over the month. The worst November was in 2018 when it dumped 36.6%, according to Coinglass. On average, November is usually the best-performing month for the asset.

December is already shaping up much better as BTC is up 2.3% so far this month. However, it has a long way to go to beat the whopping 47% it made in December 2020.

Bitcoin powered to a three-week high of $94,500 in late trading on Tuesday, but it couldn’t hold those gains and retreated to $92,400 during the Wednesday morning Asian trading session.

The move comes as the Federal Reserve is expected to announce a rate cut later today, but markets have already priced this in, say analysts.

Spencer Hallarn, Global Head of OTC at crypto capital markets partner GSR, agreed with Coinbase, stating, “I think we’ve shaken out a lot of the bulls and built a solid base of skepticism.”

“Perpetual funding rates are very low or negative, which suggests there isn’t much leverage in the system. Taken together, that setup looks pretty bullish for a Santa rally. I think EOY is looking good.”

Correlations With US Stock Markets

Bitcoin is currently mispriced relative to the Nasdaq and high-beta tech stocks, creating a buying opportunity in the near term, according to Michaël van de Poppe, founder of MN Fund, on Tuesday.

While the Nasdaq has shown resilience, Bitcoin hasn’t kept pace despite their historical correlation, creating a pricing gap. The recovery in high-beta stocks signals renewed risk-on appetite in markets, which historically correlates with Bitcoin rallies, he said while dismissing the four-year cycle thesis.

“In that light, in the coming few weeks, perhaps months, it’s very likely to see Bitcoin grind back upward to the levels of $110K-$115K, inversing the entire loss as the entire correction was a little dubious.”

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