Is Chinese New Year the time to buy Bitcoin?
Bitcoin has developed something of a trend that occurs every January, before Chinese New Year. But could investors use this to their advantage? We investigate
Investors are always keen to try and harness volatility for their own gain. Now analysts have noticed a fascinating annual trend affecting the Bitcoin price.
Since 2015, it has been observed that the price of Bitcoin has fallen dramatically every January.
In January 2015, Bitcoin fell by 27.3 per cent. The following January saw the price drop by 12.7 per cent. Bitcoin suffered less in its boom year of 2017, with a fall of just 0.25 per cent. But 2018 brought more woes, with the price falling by 26 per cent.
So, what is the cause of these January blues?
The Chinese New Year “Calendar Effect”
In an opposite movement to the so-called “Santa rally”, where stock markets seem to rise every December, Bitcoin seems to be affected by the approach of Chinese New Year, celebrated in China and by much of the world at the end of January or start of February, as a “calendar effect” anomaly.
A consistent pattern has been seen where 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 are followed by persistent fall 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. Once home, family members give each other money in red packets 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 January 28 alone, which happens 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 doesn’t just affect the Bitcoin price in China. With huge numbers of people throughout Asia and all over the world celebrating Chinese New Year, that’s potentially a lot of cryptocurrency investors cashing in their coins to contribute to this anomaly.
In further support of the calendar effect, while January tends 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 per cent. In February 2016, Bitcoin rose by 18 per cent and in the same month in 2017 by 23 per cent, seemingly as a result of traders returning to the market.
Regulation takes its toll
Yet the drops can’t 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.
Bitcoin news in China can also affect price
There have been plenty of other factors that have contributed to Bitcoin’s volatility. For a start, it seems headlines are filled every day with China’s cryptocurrency news. President Xi Jinping was not initially fond of Bitcoin and not only banned cryptocurrencies in China in 2017, he excluded global crypto giants Binance and Tron from Chinese social media platform Weibo. Chinese investors have 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 per cent price surge for Bitcoin. China also declared that it plans to launch its own state-regulated cryptocurrency, which is being developed by its central bank.
However, as much as President Xi seems to support blockchain technology, he hasn’t changed his mind about unregulated digital coins. China’s cryptocurrency news has recently again featured Bitcoin, the truth being that Xi believes cryptocurrencies to be “unregistered securities, financial fraud and illegal Ponzi schemes”.
Fortunately for cryptocurrency investors, they didn’t have to stay disappointed for long, as the comments caused a 42 per cent surge in the price of Bitcoin. This was not only the largest increase seen since May 2011, it was the fourth largest rise ever.
The next Chinese New Year, the year of the Rat, will fall on January 25, 2020, nine weeks away. And while China’s cryptocurrency news may have to take a back seat to the US-China trade war and ongoing protests in Hong Kong, it will still be worth watching to see what the next Chinese New Year calendar effect brings for Bitcoin.
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