Experienced cryptocurrency analyst Timothy Peterson, evaluating the recent pullback in Bitcoin, made noteworthy statements regarding why the declines intensified in the final months of the year.
According to Peterson, there are multiple reasons why bear markets frequently bottom out in December. Chief among these is the tax system in the US. The analyst explains that investors sell off losing assets towards the end of the year, offsetting these losses against their year-to-date earnings and thus reducing their tax burden. He notes that these sales create additional pressure on the market, driving prices down.
Peterson acknowledged that the 30-day “washout sale” rule, common in traditional markets, doesn't technically apply to cryptocurrencies, but added that similar behavior is seen in Bitcoin and the crypto market in general. Responding to a follower's reminder on this topic, Peterson said that the motivation to sell in December is strong in crypto as well, but that incentive suddenly disappears when the calendar turns to the new year.
According to the analyst, selling for tax purposes no longer offers an advantage after the New Year. Conversely, many investors who reduced their positions at the end of the year are now driven by a desire to regain market exposure. Peterson notes that this supports the “January effect,” frequently observed in the crypto market, particularly highlighting that professional investors collectively rebalance their portfolios in the first weeks of the year.
Peterson stated that some institutional investors may have postponed their Bitcoin purchases until early January, which could trigger a moderate recovery rally in the first part of the new year.
*This is not investment advice.
