Crypto prices have been soaring for the past year. With a short hiatus during the COVID-19 outbreak in March 2020, there has been a constant bull run in the cryptocurrency markets.
Thanks to this, the number of investors has been increasing by the day, as people buy bitcoin with credit card or by any other means available to them. But this market is still quite young and external events can sometimes be a large contributor to extreme price swings.
One type of these external influencers can be the “calendar effect”. In this article, we explore one such event, which is related to the celebration of the Chinese New Year. Based on the lunar calendar, this date varies each year and is usually between the 20th of January and the 20th of February, In 2021, the Chinese New Year will be celebrated on the 12th of February.
It is believed that this celebration has had a strong influence on cryptocurrency prices in the past. But is this true or is it just a myth? Let’s find out about the factors that might be influencing the prices of crypto in this period.
How is the Chinese New year celebrated?
There is a large number of traditions that are observed during the Chinese New Year, such as putting up decorations, gatherings, meals with the family, and fireworks.
However, there are two very interesting traditions observed during this period – the offering of expensive gifts and settling debts. Chinese people believe that it is important to display model behavior on the first day of the year, and on the contrary, you might be followed by bad luck the whole year through.
One plausible theory of how the Chinese new year can influence the price of Bitcoin is the gifting of “red envelopes” which are a gift in cash money. Given the high population of the country, the number of red envelopes sent each year is staggering: more than 100 billion red envelopes are sent each year over electric cash payments such as WeChat and Alipay.
How does the Chinese new year affect the price of Bitcoin?
With that in mind, it’s not too strange to think that Bitcoin holders would cash out some of their BTC holdings to be able to give out these cash gifts to friends and relatives.
Furthermore, there are billions of people that travel during this time of year, to visit relatives.
There are at least 1 billion Chinese people traveling across the country or returning from abroad. It is considered to be the greatest short-term migration in the world, and it happens every year.
A number of these travelers are possibly dipping into their crypto funds for travel money, and influencing the price of Bitcoin, increasing the supply of coins on the market.
And as the supply increases, the prices of cryptocurrencies plummets, or so it would seem. But does the Chinese new year really have a negative impact on the crypto market?
Some analysts believe this is the case and support their theory with statistical proof. Others, on the other hand still think that the cryptocurrency price dip in January is nothing more than a self-fulfilling prophecy and has nothing to do with the Chinese new year.
Bitcoin’s price before and after the Chinese new year in the past few years
Let’s have a quick look at what happened to the price of Bitcoin in the past few years during that period.
◦ Pre CNY high $1000
◦ Post CNY low $800
◦ Price drop -20%
◦ Pre CNY high $14000
◦ Post CNY low $7000
◦ Price drop -50%
◦ Pre CNY high $4041
◦ Post CNY low $3350
◦ Price drop -17%
◦ Pre CNY high $9250
◦ Post CNY low $8210
◦ Price drop -11%
For 4 consecutive years, the price of Bitcoin has flawlessly dropped in the approach of the Chinese New year. The worst case of Bitcoin’s price dropping was registered in 2018, with more than a 50% loss in value in just a couple of weeks.
The relatively mellow drop in 2020 could be signed off to the coronavirus pandemic and the traveling restrictions that were enforced during that period.
Following this data, we can draw a conclusion that there might be some correlation between cryptocurrency prices dropping and the Chinese new year celebrations.
With a population of 1.4 billion people, the Chinese new year is one of the most celebrated holidays on a global level. During this period, traditions of settling debts, offering money, and traveling across the country increase the demand for cash money in China. To gain access to cash, many Chinese crypto investors sell a part of their crypto funds, increasing the supply of cryptocurrencies on the market, and resulting in a drop in crypto prices right before the New Year is celebrated.
This article was written by Judy Smith
About the Author:
Being in love with communications and human relations I found myself in Journalism. Another passion of mine is the crypto world and I believe in the crypto future. So I have spent the past 8 years studying as much as I can and sharing my own experiences with people. I am writing now about new trends – how crypto keeps changing the world, businesses, and our future.
Featured Image Credits: Pixabay