Is the Santa Claus market just a mirage? ... Kaiko research on Bitcoin's year-end cycle and volatility diagnosis

Kaiko Research( recently reported that the year-end Bitcoin)BTC( market is influenced by repetitive cyclical patterns, which are more pronounced than traditional seasonal effects. The report specifically analyzes that the expected “Christmas rally” at year-end diverges from reality, and through volatility and derivatives positioning, it reveals a complex interplay of market uncertainty and confidence.

Since 2018, Bitcoin has gained over 600%, outperforming the Nasdaq 100, S&P 500, and gold, but due to recurring boom and bust cycles, its declines are often substantial. Kaiko Research points out that after a sharp sell-off on October 10th this year, Bitcoin failed to recover, while the US stock market rebounded quickly, explaining this as part of a persistent cyclical behavior.

In fact, Bitcoin’s performance in December shows considerable variability. In years with a bull market, December gains exceed 30%, but during bear market-dominated periods, declines of over 15% can occur. This volatility is closely related to the momentum from November’s performance. The assessment suggests that, compared to seasonal turning points, the prevailing market trend at the time has a more direct influence on year-end performance.

Particularly notable is the phenomenon of volatility compression near the end of the year. Realized volatility surged above 60% after a sharp increase in early December but eased slightly to around 51% by the end of December. Meanwhile, implied volatility has been declining since mid-November, maintaining around 45%. This causes the spread between realized and implied volatility to turn negative, creating an abnormal structure. Kaiko warns that such an inversion has previously occurred before significant Bitcoin price swings and is interpreted as an indicator of market distortion or complacency.

The derivatives market also shows signs of a turning point in market sentiment. The average spot trading volume for Bitcoin and Ethereum)ETH( sharply declined from over $400 million to $200-300 million, and Bitcoin’s open interest)OI( remained stagnant between $7 billion and $9 billion throughout December, with no signs of expansion. As altcoin open interest increased relatively, this can be seen as a selective risk-taking approach rather than a broad market move.

In the options market, hedging demand is prominent rather than directional confidence. Based on the December 26 expiry, the most traded strike at $85,000 features put options with a notional volume exceeding $5 billion, and the put-call ratio remains neutral. This reflects a risk management approach rather than a bullish bet on Bitcoin. Such positioning can be understood as driven by year-end portfolio rebalancing, tax strategies, and preparations for volatility in the new year.

The analysis concludes that the overall market at year-end is primarily focused on adjusting existing risk exposures and defensive strategies against uncertainty, rather than establishing aggressive new positions. Kaiko’s research team states: “The slowdown in trading volume, volatility distortions, and balanced positioning suggest a lack of confidence in the year-end rally. Currently, the cyclical market structure plays a more significant role than the traditional Christmas rally.”