Is Chinese New Year the time to buy BTC?

• Updated

After a few years of price leaps, will the Year of the Tiger mean a return of the Chinese New Year dip?

Investors are always keen to try and harness volatility for their own gain. Analysts noticed a fascinating annual trend affecting the bitcoin price.

Beginning in 2015, when the Chinese zodiac switched from Year of the Horse to Year of the Goat, the price of BTC fell dramatically in January.

In January 2015, bitcoin plunged 27.3%. The following January saw the price decline by 12.7%. Bitcoin suffered less in its boom year of 2017, with a drop of just 0.25%. But 2018 brought more woes, with the price plunging by 26%. In January 2019, it closed the month 10% less than it began. The next two Januarys bucked the trend, with increases of 29.8% in 2020 and 12.7% in 2021 between the start and finish of the period.

So, what caused the January blues for so many years, and will they return in 2022?

The Chinese New Year “calendar effect”

In an opposite movement to the so-called “Santa Claus rally”, where stock markets seem to rise every December, bitcoin had been affected by the approach of Chinese New Year, celebrated in China and around much of the world at the end of January or start of February, as a “calendar effect” anomaly.

A consistent pattern saw a dip in BTC price is observed at the start of the year and continues until Chinese New Year in January-February, before a slight recovery takes place.

Indeed, we can also observe a countercyclical relationship between bitcoin prices and trading volumes; spikes in Chinese yuan-denominated BTC trading volume followed by persistent falls in prices before Chinese New Year. Despite unfavourable regulations in China, a large number of bitcoins are undoubtedly held by the Chinese.

Cashing in bitcoin for holiday expenses

Chinese New Year or Lunar/Spring Festival is the most important holiday in the Chinese calendar and sees the country slow down. Most Chinese companies close for 10 days prior to the event, to allow workers time to make the often lengthy and expensive trips back home. For that reason, it is generally known as the world’s biggest annual migration. The continuing battle with Covid-19 means it probably will not be back to 2019 levels. Once home, family members give each other money in red envelopes to bring good luck and enjoy festivities that can last for up to two weeks.

Cryptocurrencies are extremely popular in Asia and many Chinese investors, it seems, choose to cash in their bitcoin during the four weeks prior to the holiday to prepare for the expenses it will entail.

Indeed, looking at 2019, we can observe the BTC price dropped by $100 on 28 January alone, which happened to be the day the Chinese New Year festivities began. As most years have seen only minor ups and downs in the price of bitcoin during the festival, we might assume that the contribution of Chinese investors to the crypto trading space could be significant.

Of course, this does not just affect the bitcoin price in China. With huge numbers of people throughout Asia and all over the world celebrating Chinese New Year, that is potentially a lot of cryptocurrency investors cashing in their coins to contribute to this anomaly.

February gains

In further support of the calendar effect, while January has tended to see a fall in China cryptocurrency prices, February has often observed bitcoin gain value. In 2015, February saw bitcoin’s price increase by 16%. In February 2016, bitcoin rose by 18% and in the same month in 2017 by 23%, seemingly as a result of traders returning to the market.

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In 2020, as the new coronavirus spread around China and to the world, BTC traded at $8,880.93 the week before the holiday, lost more than $500 by the big day on 25 January, then rallied to more than $10,373 on Valentine’s Day. History was made in 2021, when BTC traded for $33,154 to end January and reached $50,000 for the first time on 16 February, four days after the Year of the Rat gave way to the Year of the Ox.

Regulation takes its toll

Yet the drops cannot always be attributed only to the new year festival. In January 2018, for example, South Korea, the world’s third biggest digital coin market, banned anonymous bank accounts being used to buy and sell cryptocurrencies. The price of bitcoin fell from $11,000 per coin to $10,719 on the morning after the ban, as investors worried about the effect on demand.

BTC news in China can also affect price

There have been plenty of other factors that have contributed to bitcoin’s volatility. President Xi Jinping has never really been fond of bitcoin. Not only were cryptocurrencies banned in China in 2017, he excluded global crypto giants Binance and Tron from Chinese social media platform Weibo. Chinese investors had to find creative methods to bypass online restrictions and trade cryptocurrencies since then.

However, Xi seemed to come around to blockchain technology by 2019, stressing in October: “It is necessary to strengthen basic research, enhance the original innovation ability, and strive to let China take the leading position in the emerging field of blockchain”.

This prompted China’s regional governments to pledge development funds of $5.7bn for blockchain projects, with the endorsement creating a welcome 40 % price surge for bitcoin. China also declared that it plans to launch its own state-regulated cryptocurrency, which is being rolled-out in time for the Beijing Olympics in February.

However, as much as President Xi seemed to support blockchain technology, he did not change his mind about unregulated digital coins. Xi believes cryptocurrencies to be “unregistered securities, financial fraud and illegal Ponzi schemes”.

Finally, in September 2021, banks were banned from offering crypto services, including exchanging fiat for tokens or make crypto-to-crypto conversions. Later in the fall, the ruling Communist Party also expelled a senior member from Jiangxi province, Xiao Yi, for allegedly violating the ban on mining.

The bans meant an outflow of miners to more welcoming jurisdictions, such as the US, Canada and Kazakhstan.

The coming Chinese New Year, the Year of the Tiger, will fall on 1 February 2022. The tiger represents strength and courage in the Chinese culture, which could bode well for BTC investors.

And while China’s cryptocurrency news may have to take a back seat to the pandemic, Winter Olympics, US-China trade war, sabre-rattling over Taiwan, and human rights in Hong Kong, Tibet and Xinjiang, it will still be worth watching to see what the Chinese New Year calendar effect does for bitcoin.

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