As the year draws to a close, a series of recent macroeconomic events have set the stage for a "Santa Claus squeeze" — leading to a potentially significant rally for digital assets, according to investment firm Matrixport's Head of Crypto Research and Strategy Markus Thielen.

In his Deribit Insights report, Thielen added that bitcoin tends to rally by an average of 23% during the pre-Christmas period of November and December. Last week was also the first when higher beta crypto assets outperformed bitcoin recently, Thielen noted, adding weight to the signal that a Christmas rally could be on the cards.

Thielen identified three macro events over the past week that signal interest rates have peaked for the cycle, paving the way for such a rally in risk assets.

First of those key developments is the United States Treasury's shift to issuing shorter-dated debt, suggesting anticipation of falling interest rates, which bodes well for assets like tech stocks and cryptocurrencies, according to Thielen.

Secondly, dovish signals from Fed Chair Jerome Powell during the post-FOMC meeting press conference have opened the door to a pause in rate hikes — if not outright cuts in 2024 — injecting optimism into risk asset markets.

Thirdly, last week’s disappointing U.S. nonfarm payrolls report indicates a cooling labor market, further dampening the likelihood of additional rate hikes, Thielen said.

Thielen also noted that when the Fed last concluded an interest rate hiking cycle in January 2019, bitcoin’s price rallied around 400%. While not expecting a move of this magnitude, the analyst said it suggested bitcoin could significantly advance in 2023 and 2024.

Spot bitcoin ETF momentum

Momentum is also bolstered by the possibility of a BlackRock spot bitcoin ETF approval, Thielen added, which could catalyze a broad-based crypto rally — not just for bitcoin but for higher beta crypto assets as well.

Comparing the prospect to when the CME announced the upcoming launch of bitcoin futures products in 2017, Thielen noted prices continued to stay “overbought” at the time – based on the relative strength index – from the announcement until the actual launch.

In the same vein, Thielen suggested that it was premature to cut any exposure before any U.S.-listed spot bitcoin ETF actually starts trading.

Ethereum shows signs of a resurgence

Bitcoin is up 2% over the past week, according to The Block’s price data. Ethereum, which has lagged behind bitcoin in recent weeks, is up 5% during the same period. XRP has gained 24% ahead of a meeting between Ripple and the Securities and Exchange Commission on Nov. 9, and Solana posted 16% gains following its 2023 Breakpoint event in Amsterdam, due to the “strong tailwinds of liquidity that those three macro events are signaling,” Thielen said.

In another post, Thielen highlighted that the Ethereum ETH -0.011% ecosystem showed signs of a resurgence as revenues began to recover from previously low levels, suggesting a potential bottom for ether's price.

Ether managed to hold the critical support level of $1,550 — and its performance, along with other altcoins, is starting to outshine bitcoin's, as indicated by the leading digital asset's declining dominance in the market, Thielen added.

The shift is accompanied by an increase in ether's trading volume and a rise in the perpetual futures funding rate for both bitcoin and ethereum, reflecting growing optimism among traders, he said.

These factors, along with the Greed and Fear sentiment index suggesting a move into a more idiosyncratic environment, point to growing trader confidence in crypto assets and potentially set the stage for a strong performance as the market heads into the final stretch of the year, Thielen concluded.