How Does Chinese New Year Affect Bitcoin Price in 2021

The calendar effect is a type of event where studies investigate the effects of a prominent holiday (Chinese New Year, Christmas, Halloween etc.) on the market sentiment and value. Some common trends that began this analysis practice is during Thanksgiving and Christmas where stock markets have a repeated pattern of spikes in trading volumes on the last trading day prior to the holiday date.

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Every year on January and February, it is common to start seeing articles like Bloomberg as traders and investors begin to anticipate the effects of Chinese New Year on Bitcoin (BTC) price.

It has been reported that BTC has experienced a dump between 15% to 50% beginning in early to mid-January for the last five years prior the year 2020. In a Medium article that covers the analysis of Chinese New Year effect on Bitcoin, the author has found that since 2014, BTC price tends to dip from the beginning of the year and towards Chinese New Year before a slight recovery phase that takes after the holiday ends.

As a result, Chinese New Year is known to be “Reverse January Effect” where BTC price declines every January and coincidentally always 4 to 6 weeks before the Chinese holiday. Some of the main factors that play a role in the phenomenon includes:

1. Chinese New Year Traditions

During Chinese New Year, it is tradition for Chinese families and friends to give red packets, also known as “hóng bāo”, to each other in fiat currency. The amount of fiat per red packet can range between multiples of 50s to 100s across various currencies. Thus, there is an increase in demand for BTC to fiat conversions.

2. Population Size

An estimate of 2 billion ethnic Chinese globally take part in the holiday. Majority of BTC is held by the Chinese population, thus, there is a lot of people withdrawing BTC to convert to fiat via P2P and OTC markets.

Below is a summary of the BTC price during Chinese New Year period from 2016 to 2020, where we can consistently see a price drop every year.

In the graph below, we can see that between January to February 2019, BTC trading value was ranging between 3,300 to 4,000 before it started to climb all the way back up above 5,000.

In 2020, while crypto exchanges teams expected the “nosedive” of BTC price during the Chinese New Year period, how deep the value would decline was not anticipated to be as bad as previous years.

In an article by Decrypt, Bobby Ong, co-founder of CoinGecko, noted that the year 2020 will have a ‘relatively muted activity’ due to the coronavirus pandemic.

Bobby Ong noted that “it’s been observed that Bitcoin make movements on the run up towards Chinese New Year. One may argue that Bitcoin moves up towards the Chinese New Year period as Chinese traders created a feel good feeling before taking profit and closing off the accounts for a week for the festivities… That being said, celebrations are muted this year as China is currently battling the coronavirus in Wuhan and many people are scared of the effect of this fast-spreading virus.”

 

In the graph below, we can see how the price of BTC was already struggling prior to the Chinese New Year holiday which fell on the 25th January 2020.

In 2021, the year of the Ox is expected to occur on Friday 12th February. Can we expect that this year, the phenomenon can occur?

As we can see what has happened so far in January 2021, Bitcoin is struggling to break through resistance level and find steady support level. 

Markets Insider reported that BTC fell back below USD 32,000 support level on Sunday 24th January 2021 where the trading price was valued at USD 31,885.49.

Entering the new month of February 2021, as anticipated earlier, there is a steady support level and Bitcoin price has inclined above USD 35,000. On 3 February, the Bitcoin price was ranging around USD 36,500, as seen below.

In a short run, BTC price is expected to struggle to break through its resistance level above USD 40,000 and could decline in price; however, it is important to keep in mind for long term traders and investors that the asset would remain a bullish trend in the future. 

A senior market analyst at Oanda, Edward Moya, noted that, “Bitcoin will remain volatile and if it can continue to consolidate between $30,000 and $40,000, many crypto traders will argue the longer-term bullish trend is intact.”


Notice: This is not a financial advice. All readers must conduct their own research and analysis. It’s important to practice DYOR (do your own research).

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