Chinese New Year (Lunar New Year) has strong influence on cryptocurrency prices, with Bitcoin prices decreasing in the months leading up to the New Year. This article examines the trend and the possible reasons for why it happens. Chinese New Year is celebrated on a different day each year as it is based on the Lunar Calendar. Below were the days Chinese New Year fell on in previous years:
- 2016: 8 February to 10 February
- 2017: 28 January to 30 January
- 2018: 16 February to 18 February
- 2019: 5 February to 7 February
- 2020: 25 January to 27 January
- 2021: 12 February to 14 February
This year, Chinese New Year will begin on 1 February and end on 3rd February. During this time many Chinese Over-the-Counter (OTC) services will be closed – leading to high crypto volatility.
*Data based on Bitcoin Prices on Coingecko. Pre-CNY Highs taken as average candle price up to 7 days before the New Year.
This period is a public holiday in China, as many employees make the annual trip back to their hometowns to celebrate with their families. With a population of 1.386 billion, this represents the largest short-term migration in the world. All factories in China close during this period, with operations frozen for up to 2 weeks as logistics companies and suppliers slowly open up. Chinese New Year is also celebrated in other Asian countries such as Hong Kong, Singapore, and Korea (Korean New Year). With China deploying its national digital currency known as DCEP, further testing and development will take a break during the Chinese New Year. However, it’s important to note that during this time cryptocurrency exchanges will still operate and facilitate trading 24H/day (see Crypto Head).
Chinese New Year Dump?
Bitcoin prices would almost always drop in the weeks leading up to Chinese New Year.
For example, in 2017, prices dropped by 30% from $1,130 to $784 right before the festival. This pattern has been referred to as the “Chinese New Year Dump”.
In 2019, Bitcoin prices dropped steadily from $3,491 right before the Chinese New Year to lows of $3,397 during the holiday.
In 2020, prices again dropped before Chinese New Year, even breaking the initial resistance of USD$8.3k. And whilst it did rally up to USD$8.5k on the first day of Chinese New Year, history cannot help but repeat itself, and within the same day plummeted back below USD$8.3k. Prices remained stagnant during the 2nd day of Chinese New Year, and only made a marked recovery and upward trend on the last day of the holidays.
In 2021, the tides seemed to have turned with a gradual increase from $32k to $39k in the first week of February, and a huge 2-day rally up to $48k in the few days leading up to the festival. However, in following the Chinese New Year dip trend, prices still began retracing to $46.2k, although fortunately not wiping out the pre-Chinese New Year rally.
Decrease in Trading Volume?
Data compiled by CoinDesk Research shows the trading volumes on Binance, Huobi, and OKEx –the most popular cryptocurrency exchanges catering to Chinese customers – were down during the Chinese New Year period in the past two years. A decrease in trading volume can also be seen during the month of October each year when Golden Week (a 1-week celebration for National Day) in China takes place.
When large numbers of highly leveraged traders all bet on Bitcoin prices moving one way it creates an opportunity for other large investors (whales) to move prices in the other direction. Doing so triggers a cascade of liquidations, sending Bitcoin’s price into free fall and creating huge paper losses for leveraged long traders. The whales are then free to “buy the dip” at the expense of “rekt” traders.
Market Makers on Holiday
It is no secret that market makers and trading bots operate in the Cryptocurrency market – in fact, they are responsible for a portion of the market volume. Market makers located in China and other Asian countries will shut down operations for 3-5 days due to the public holidays. Even though market making can be automated by trading bots and algorithms, it still requires humans to watch over the daily operation to make sure the is no malfunction.
During the Chinese New Year, market-making operations will be limited in capacity. This leads to more volatile and less liquid markets.
Cashing out for the New Year
One of the possible reasons for the dip in Bitcoin prices is that people are “Cashing out” for the holidays. This is especially true in China because, during the festival, lucky packets packed with cash are traditionally given out to children and the elderly. These “red packets” are meant to symbolise luck and prosperity and the only time where giving cash is not taboo in China.
Tradition dictates that married couples should give out red packets to young unmarried children, elderly and service personnel. Company Executives and managers should also give money to their subordinates – with some packets being filled to as much as the employee’s monthly wage.
Due to the huge amount of cash money required, some suspect that this tradition is responsible for the increase in Bitcoin Sell orders before Chinese New Year.
Chinese OTC Volume Drops
Bitcoin is traded in China via Over the Counter (OTC) desks. These OTC desks match orders from buyers and sellers and can offer escrow services. Top desks include Genesis Block, Binance OTC and Huobi OTC.
Chinese New Year 2022 Bitcoin dump?
The situation may be a little different this year because China’s impact on cryptocurrencies has decreased drastically. Although there may still be some volatility as it is still a complete national shutdown during this period, the impact may not be as significant as the previous years.
China’s impact is reduced
Asia’s largest exchange, Huobi, is ceasing retail trading in China. Bitcoin has been flowing from Asia to the US and Europe for some time. The final impact of the Chinese cryptocurrency ban in September 2021 is unfolding. After gradually removing Chinese mainland users, Huobi’s share of the global open interest has fallen to 2%, down from its 15 February 2020 peak of 20%.
Mining rate from china dropped significantly
China used to be the epicenter of bitcoin mining, with over 65% hash rate. But then in May 2021, the CCP began a systematic crackdown on crypto mining activities. The hash rate dropped steadily, hitting a yearly low of 58.4 million terahashes/s. This then corresponded with a price drop to $29K, which is almost a 60% correction compared to April 2021.
The good news is, a lot of the mining equipment has been shipped to other countries, primarily the US. In fact, over $400 million worth of mining equipment has been shipped from China to the US.
In 2021, Chinese market makers would shut down operations during Chinese New Year, creating higher volatility and lower liquidity in the market. But now the narrative has changed. China no longer has that much of an impact on crypto and finally, the narrative of Bitcoin being centralised in China is no longer true. US companies have become the beneficiaries of displaced Chinese miners looking for a place to continue their operations. Other countries have also seen new miners due to their cheap electricity costs.
More money flowing into cryptocurrency
One of the biggest stories to emerge out of 2021 was El Salvador’s adoption of Bitcoin as legal tender in September. Their President said the move would help address the nation’s high unbanked population as well as reduce remittance costs in a country of 6.5 million, where roughly 20% of the GDP is comprised of international transfers.
Ever since the adoption, the natural question has been which — if any — country might follow suit. Bukele entered into this discussion by making his own predictions on Twitter that Bitcoin will reach 100k and 2 more countries will adopt Bitcoin as legal tender.
Predictions for Bitcoin 2022 Chinese New Year?
We are currently in the midst of a mini bear market, prices had plummeted from $56.9k to under $47k in a single day in early December 2021, and further to sub $40k levels in early January 2022. For now, a recovery back to these early December 2021 highs appears unlikely, let alone the above $65k levels which we had in November 2021 before the dips began. On 21 January 2022, prices fell from $43k to sub-$39k at one point-scaring investors from across the globe resulting in further panic sells. It is hoped that with the decreased Chinese influence, there would be fewer similar dips in the weeks leading up to Chinese New Year whilst we see if prices can head towards recovery before the holidays begin and dumps are expected.