Bitcoin Santa Rally Or Year-End Slump? What Needs To Happen For BTC To Break Out

Bitcoin has fallen to its lowest level since August 20, and fear is back across the crypto market. Trader and analyst Tim Warren is not worried. He says the current pullback closely resembles early 2023, when Bitcoin dipped back to its 200-day moving average shortly before a new bull market began.

Bitcoin Sits On A Key Average

Bitcoin is trading near $74,000, right on its 200-day moving average. On the day of the latest inflation report, the price dropped on the hot reading, recovered all of its losses, and then fell again to land on that line.

Warren had expected this. In late September, he told his audience that sell signals were starting to pile up and that a correction back toward the 200-day average was likely. At the time, many traders were calling for a move above $90,000.

Why The Bottom May Already Be In

Warren believes Bitcoin’s bear market bottomed in the summer at $57,700. He pointed to several signs that the trend has turned:

• Bitcoin made its first higher high since the bear market began
• It broke above the trendline that had capped prices during the downturn
• It climbed back above the 200-day moving average before the latest pullback

Extreme Fear, But A Higher Price

The Crypto Fear and Greed Index has dropped back into extreme fear for the first time since August. According to Warren, Bitcoin is still about 17% higher than it was the last time sentiment was this low. To him, that points to “a screaming healthy correction” rather than the start of a new collapse.

The “Composite Man” Theory

Warren pointed to the ideas of Richard Wyckoff, a market trader from about a century ago, to explain the recent run of bad news. Wyckoff described big market players as one figure he called the “Composite Man.” In this view, large players push bullish headlines near market tops and frightening ones near bottoms.

The past few weeks have brought exactly that kind of news: the Binance hack, Democrats winning control of Congress and a hot inflation report. Warren had warned his community in September to expect “headlines that terrify you” during the correction.

Will Bitcoin Get A Santa Rally?

Asked about a year-end rally, Warren said he mainly expects volatility. He had earlier predicted a new all-time high by January 20, but now says that is “probably not going to happen.”

He said big institutions are holding back until two issues are settled:

• The Iran war: Oil prices have stayed high because of uncertainty over the conflict
• The Fed: After the hot inflation report, markets are pricing in about an 82% to 83% chance of a rate hike in December

What Could Spark The Next Rally

Warren believes the end of the Iran war could be the turning point. He noted that in recent inflation data, prices outside energy were running near or below the Fed’s 2% target. Energy costs were up about 10%, and transportation about 7% to 8%.

Once the war ends, Warren expects oil prices to fall sharply. That would bring inflation down faster than many expect, allow the Fed to stop raising rates and could even reopen talk of rate cuts, a setup that would favour Bitcoin.