Bitcoin Poised for Santa Rally as Market Leverage Declines

According to Coinbase Institutional, a “rocky November may have set the stage for a December to remember.” The firm’s analysis centers on a significant reduction in speculative excess. Its proprietary “systemic leverage ratio,” which tracks purely speculative positioning, has stabilized at approximately 4% to 5% of Bitcoin’s total market capitalization. This marks a substantial decline from the 10% level observed this summer, indicating that a significant amount of risky, leveraged bets have been cleared from the system.

This deleveraging is viewed as a critical reset for market health. “Speculative excess has been flushed out,” stated Coinbase, concluding that “lower leverage = healthier market structure + less vulnerability to sharp drawdowns heading into year-end.” The data supports this cautious optimism: Bitcoin recorded its second-worst November in history with a 17.7% loss, only surpassed by a 36.6% dump in November 2018. Historically, November is Bitcoin’s best-performing month, making this year’s decline particularly stark but potentially cleansing.

Early December price action and derivative market metrics are aligning to support the bullish thesis. Bitcoin is up 2.3% so far in December, a positive start compared to November’s steep losses, though it has a long way to go to match the 47% gain of December 2020. More telling are conditions in the perpetual futures market. Spencer Hallarn, Global Head of OTC at crypto capital markets firm GSR, agreed with Coinbase’s assessment, noting, “Perpetual funding rates are very low or negative, which suggests there isn’t much leverage in the system.”

Hallarn elaborated that this environment, combined with a market that has “shaken out a lot of the bulls and built a solid base of skepticism,” creates a “pretty bullish” setup for a traditional Santa rally. “I think EOY [end of year] is looking good,” he stated. This sentiment emerged as Bitcoin briefly powered to a three-week high of $94,500 before retreating to around $92,400. Analysts noted that an expected Federal Reserve rate cut appeared already priced into these movements, shifting focus back to crypto-specific fundamentals.

Another compelling argument for a near-term Bitcoin rally stems from its relationship with traditional risk assets, particularly technology stocks. Michaël van de Poppe, founder of MN Fund, highlighted on Tuesday that “Bitcoin is currently mispriced relative to the Nasdaq and high-beta tech stocks.” He pointed out that while the Nasdaq has shown resilience, Bitcoin has not kept pace with this historical correlation, creating a pricing gap or buying opportunity.

Van de Poppe connected the recovery in high-beta tech stocks to a renewed risk-on appetite in broader markets, which has historically been a precursor to Bitcoin rallies. Dismissing simplistic four-year cycle theories, he focused on this relative value discrepancy. “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,” he projected. This analysis suggests Bitcoin may be poised for a significant catch-up rally to realign with its correlated tech-stock counterparts.