A recent report by Kaiko Research diagnosed that the year-end Bitcoin (BTC) market was affected by recurring cyclical patterns, more strongly than traditional seasonal influences. The report specifically analyzed the discrepancy between the anticipated "Christmas rally" and reality, highlighting the interplay of market uncertainty and confidence through volatility and derivatives positioning.
Bitcoin has seen a cumulative increase of over 600% since 2018, outperforming the Nasdaq 100, S&P 500, and gold. However, due to recurring boom-bust cycles, its declines have also tended to be significant. Keco Research points out that after the sharp market sell-off on October 10th this year, Bitcoin failed to recover, while the US stock market rebounded rapidly, explaining that this is part of a persistent cyclical pattern.
In fact, Bitcoin's performance in December has shown considerable variability. In years of sustained bull markets, December sees gains exceeding 30%, while in bear-dominated periods, it can see declines exceeding 15%. This volatility is closely correlated with the momentum generated by November's performance, suggesting that the dominant market trend at that time has a more direct impact on year-end performance than seasonal turning points.
Of particular note is the volatility compression that occurred near the end of the year. Realized volatility surged to over 60% after a sharp rise in early December, but eased slightly to around 51% by the end of December. Meanwhile, implied volatility has been declining since mid-November, remaining at around 45%. This caused the spread between realized and implied volatility to turn negative, creating an unusual structure. Keco notes that this inverted relationship has occurred before similar sharp price movements in the past, interpreting it as an indicator of market distortion or complacency.
The derivatives market also revealed a turning point in market sentiment. Average spot trading volume for Bitcoin and Ethereum (ETH) plummeted from over $400 million to $200-300 million, while Bitcoin open interest (OI) stagnated in the $7-9 billion range throughout December, showing no expansion. The relative increase in Altcoin open interest can be interpreted as a market that is not broad-based, but rather selectively risk-taking on certain assets.
In the options market, hedging demand is prominent, rather than directional confidence. Using the December 26 expiry date as a benchmark, at the most concentrated trading price of $85,000, put option trading volume exceeded $5 billion in notional value, and the call-put ratio remained neutral. This reflects that risk management strategies are dominant, rather than one-sided bets on Bitcoin's rise. This position structure can be understood as stemming from year-end portfolio rebalancing, tax strategies, and coping with New Year volatility.
Analysts believe that the year-end market will primarily focus on adjusting existing risk exposures and defensive strategies against uncertainty, rather than establishing aggressive new positions. The Keco research team commented, "Slower trading volumes, volatility distortions, and a balanced positioning suggest a lack of confidence in a year-end rally; the current cyclical market structure is having a stronger effect than the traditional Christmas rally."
