Bitcoin's Q4 Underperformance Sparks Optimism for January Rally Amidst Market Caution
Bitcoin has experienced significant underperformance relative to the S&P 500 in the fourth quarter, a trend that analysts suggest could set the stage for a positive start to the new year. Despite recent price stabilization around the $87,500 mark, market participants remain hesitant, with trading volumes and derivatives activity indicating a lack of strong directional conviction.
Key Takeaways
- Bitcoin has underperformed the S&P 500 by 26% in Q4, a pattern historically followed by January gains.
- Year-end portfolio rebalancing by asset managers may lead to increased inflows for Bitcoin.
- Technical indicators, like the 100-week moving average, are being closely watched as a key support level.
- Market sentiment remains cautious, with low derivatives activity and declining spot trading volumes.
The Impact of Underperformance on January Prospects
According to Vetle Lunde, head of research at K33, Bitcoin's substantial underperformance against the S&P 500 in the fourth quarter could be a bullish signal for January. Lunde's analysis points to a historical pattern where periods of Bitcoin lagging behind equities have been followed by gains in the subsequent quarter. Conversely, when Bitcoin outperformed in the first quarter, it saw declines in the third. The current 26% underperformance in Q4 suggests a significant portfolio rebalancing is likely.
Lunde explained that fund managers with predetermined Bitcoin allocation targets might adjust their holdings by year-end. This adjustment could result in "excess inflows" during the final trading days of the year and into early January, potentially boosting Bitcoin's price.
Market Hesitancy and Technical Indicators
Despite the potential for a January rally, crypto traders are exhibiting caution. Derivatives activity on the Chicago Mercantile Exchange (CME) remains near yearly lows, with Bitcoin futures open interest showing little movement. Similarly, perpetual swap markets indicate a neutral funding rate and a lack of short-term directional conviction. Spot crypto trading volumes have also declined, further confirming traders' reluctance to engage as the year concludes.
From a technical standpoint, Bitcoin is trading near a critical long-term price level: the 100-week simple moving average (SMA). This average has acted as a support for three weeks, halting declines from record highs. However, shares of MicroStrategy (MSTR), a major Bitcoin holder, have already fallen below its 100-week SMA, a move that previously preceded deeper declines in Bitcoin. Analysts emphasize that bulls must defend this 100-week SMA to prevent further losses and maintain hopes for a bullish rebound.