Chinese New Year (Lunar New Year) has a strong influence on cryptocurrency prices, with Bitcoin prices falling as the new year approaches. We’ve been following this trend for a few years already and this article examines what we’ve noticed over the years and the possible reasons for why this happens. Chinese New Year is celebrated on a different day each year as it is based on the Lunar Calendar, in the past few years, Chinese New Year was celebrated on the following days:
- 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, resulting in volatility.
This period is a public holiday in China, so 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 also close during this period, with operations frozen for up to 2 weeks. Lunar New Year is also celebrated in other Asian locations such as Hong Kong, Singapore, Malaysia 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, cryptocurrency exchanges will still operate and facilitate trading 24 hours a day.
Chinese New Year Dump?
Historically, Bitcoin prices would drop in the weeks leading up to Chinese New Year and/or see a decrease during the Lunar New Year holidays. Below we have looked at the percentage change in Bitcoin prices based on the highest price of Bitcoin in the 7 days before the new year holidays and the lowest price during the holidays itself:
- 2021: 7.99% decrease
- 2020: 9.63% decrease
- 2019: 2.69% decrease
- 2018: 23.19% increase
- 2017: 3.59% decrease
- 2016: 4.38% decrease
As we can see, the only year Bitcoin prices did not drop during the holidays was in 2018, when prices actually pumped instead. Nevertheless, there was still a substantial drop in prices from $10,114 to $6,852 between 1 February and 6 February 2018, 2 weeks before the holidays began.
Why is there a Chinese/Lunar New Year dump?
The main reason for the Chinese/ Lunar New Year dump stem from the fact that this is traditionally one of the longest extended holiday in Asian countries.
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.
Market makers shut down
Chinese and other Asian market makers will shut down operations for 3-5 days for the public holidays. Even though market making can be automated by bots and algorithms, it still requires humans to oversee daily operations, and when they are on holiday, the market makers will shut down too.
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
Many Chinese and Asians need to “cash-out” for the holidays. This is because red packets are traditionally given out to children and the elderly during the holidays. These “red packets” are meant to symbolise luck and prosperity and the only time where giving cash is not taboo in China. Many migrant workers also leave their children under the care of their elderly parents whilst they work in the city, so they would buy gifts and leave large sums of money for expenses when they make their annual visit.
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 money required, some suspect that this tradition is responsible for the increase in Bitcoin Sell orders before the Chinese New Year holidays.
Chinese New Year 2022 Bitcoin dump?
The situation may be a little different this year because China’s impact on cryptocurrencies has decreased. Although there may still be some volatility as it is still a complete national shutdown, the impact may not be as significant as in past years.
China’s impact is reduced
Huobi, Asia’s largest cryptocurrency exchange, 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 users based in Mainland China, Huobi’s share of the global open interest has fallen to 2%, down from its peak of 20% in February 2020.
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 has a lesser impact on crypto and the narrative of Bitcoin being centralised in China no longer holds true.
Mining rate in China has dropped
China used to be the epicenter of bitcoin mining, with over 65% hash rate. But in May 2021, the CCP began cracking down on crypto mining activities. The hash rate dropped steadily, hitting a yearly low of 58.4 million terahashes/s. This 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, specifically, over $400 million worth of mining equipment.
Predictions for Bitcoin 2022 Chinese New Year?
We are currently in a mini bear market, prices had plummeted from $56.9k to under $47k in a single day in December 2021, and 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 in November 2021 before the dips began. On 21 January 2022, prices fell from $43k to sub-$39k at one point. This resulted in further panic sells across the globe. It is hoped that with the decreased Chinese influence, there would be an end to the downward trend 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 again.
The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.
Disclosure: Authors are invested in cryptocurrency projects and have cryptocurrency holdings – including those covered on this website.
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