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. In 2020 it started on Saturday, 25 January and ended on Monday, 27 January. In 2021 the festival will start on Friday, 12 February and end on Tuesday, 15 February. During this time many Chinese Over-the-Counter (OTC) services will be closed – leading to high crypto volatility.
This period is a public holiday in China, as many employees travel 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).
For a consecutive 4 years, Bitcoin prices would always drop in the weeks leading up to Chinese New Year.
For example, in 2017, prices dropped by 50% from $12,000 to $6000 right before the festival. This pattern has referred to as the “Chinese New Year Dump” by cryptocurrency traders.
In 2019, Bitcoin prices dropped steadily from $4000 to lows of $3350 right before the Chinese New Year. This is shown by the chart below, with the red line marking the date of the festival.
Bitcoin Prices Drop just before Chinese New Year in 2019
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 making a marked recovery and upward trend on the last day of the holidays.
