EarnBIT · Follow
Published in · 8 min read · Feb 9, 2024
--
Chinese New Year is thought to bring profit opportunities in a highly volatile crypto market marked by shrinking volumes. With the Year of the Dragon close at hand, we look at Bitcoin’s historical data for clues about its performance through China’s longest extended holiday.
The period in question — also known as the “Spring Festival” and the “Golden Week” — falls on different January and February days. Chinese New Year, or Lunar Year, celebrates the start of another year on the lunisolar Chinese calendar with a rotation of the zodiac signs.
The festivities trigger the most massive short-term migration, as residents reunite with families in their hometowns. Local gift-giving traditions include “red packets” — bright, beautifully decorated envelopes with money that symbolize luck for the year ahead. These are typically given to kids, the elderly, and service personnel.
Chinese zodiac signs. Souce: World Gold Council
Statistically, the Chinese hold the majority of Bitcoins, despite the infamous 2021 crypto ban, misinterpreted in the West (more on this below). As per Triple-A, over 78 million people — 5.5% of the total population — owned cryptocurrencies in 2023.
According to The Wall Street Journal, Binance traded crypto-related assets worth $90B in the country in just one month of 2023. That made China the biggest market for the CEX. The Chinese only trade Bitcoin via Over-the-Counter desks like Binance OTC and Huobi OTC, which match buyers and sellers, sometimes with escrow services.
The Chinese New Year effect describes a repeated pattern — BTC slipping at the beginning of the year toward the national holiday before a reversal. Over the past nine years, its Spring Festival performance has been consistently positive, with declines shortly before the week with the exception of 2021.
This correlation has prompted 10xResearch to conclude the following:
“…historically, when Bitcoin was bought three days before and sold ten days after the Chinese New Year, the average return has been +11% for a two-week holding period. Bitcoin was higher in 9 out of the last 9 years…”
So, is there an actual causation behind this correlation?
The hypothesis is reasonably simple: preparing to enjoy their time off, the Chinese ramp up spending 2–4 weeks before the holiday. Aiming to cash out more coins for “red packets,” they open more selling positions in OTC markets.
Next, a sell-off ensues, inevitably dragging BTC down. Meanwhile, trading volumes drop due to the celebrations.
The dependence on the collective behavior of Chinese BTC holders is an assumption, not a proven fact. Not all markets popular with Chinese private investors exhibit the same changes. For example, take gold.
Gold
Buying “something gold” for the Golden Week is a national tradition. Local consumers’ purchasing power is typically the highest before Lunar New Year, which leads to increased gold consumption. As a result, historically, December has been a positive month for gold retailers, imports, and gold withdrawals from the Shanghai Gold Exchange (SGE).
The gold price rises on higher demand and a tighter supply. In 2020, World Gold Council experts wrote, “On average, the local gold premium during the six weeks prior to CNY has been 65% higher than the annual mean during the past ten years.”
Stocks
Chinese stock markets close fully or partially for the New Year, especially on the first festival days. However, the Shanghai Stock Exchange has seen notable drops in the trading volume even in the one or two weeks before market closure. It eventually bottoms out on the first trading day after the Golden Week.
Generally, the impact is mixed. Although the China A50 may rise on the positive sentiment in the build-up to the Spring Festival, a quick reversal coincides with market closure. A rise normally follows the reopening.
Historical data shows that BTC does not necessarily drop shortly before the festival day — sometimes, the decline occurs weeks earlier. Thus, we may essentially see an overlap with another well-documented phenomenon — BTC’s drops every January, 4–6 weeks before the Chinese holiday.
By February 5, 2019, BTC had slipped from a three-day high of around $4K (January 7–9). It bottomed out at $3,358.32 on January 29 — a week before the holiday — but lacked impetus until the February 8 push ($3.7K). Another jump on February 17 helped it revisit $4K in the final week.
The same pattern held, although BTC had climbed quite steadily throughout the month. It slipped slightly — below $7K — on January 3 and moved upward to $9K on January 19.
BTC dipped below $8.3K the day before the holiday and rocketed, hitting $9.5K within the first Lunar Year week and $10.4K on February 13. Eventually, it returned to $8.5K.
The holiday came amid a climb in the BTC price. Having topped out at around $41.8K on January 8, the coin declined below $30K by January 27. From there, it grew rapidly with a robust rally to $48K on February 8–9, just before the Chinese New Year, with weak oscillations on its first day.
On February 21, 2021, BTC topped out at over $58K. A drop started the next day, bringing $45.6K in around 24 hours.
BTC was recovering from a string of disasters culminating in the FTX collapse, and had suffered a decline in January, falling from $48K to $33.5K on January 24. Reversing, the coin gradually gained ground and approached $39K on February 1.
The most dramatic upswing on February 4 resulted in BTC shooting above $45K on February 10. Throughout the month, the price swang between roughly $37K and $44K.
In late 2022, BTC lost its grip on $16.8K, dropping to $16,464 on December 27. For two weeks, its price struggled. Chinese analysts were correct in predicting a pump immediately before the holiday due to the lowest unemployment rates since 2020.
BTC reached the “ultimate goal” — $18K — on January 12 and broke through $21K. Right before the festival, another hike on January 20–21 took it near $23K. The subsequent highs culminated in $24K on February 2 before a decline: BTC slipped to $21.5K on February 11, and a recovery to $25K followed.
This year’s festival lasts from February 10 to February 17. BTC has already seen a massive decline triggered by the GBTC sell-off. After peaking on the January 10 approval of spot Bitcoin ETFs, BTC fell from $46K to $38.7K on January 23.
The coin has rebounded since, trading at $47,583.89 as of this writing (February 9, 2024). According to Markus Thielen, head of research at Matrixport and founder of 10x Research, BTC may reach $48K in the short term.
In 2021, China banned all cryptocurrencies, citing concerns about the destabilization of the yuan. The country has since been seemingly cracking down on everything related to crypto trading, including bans on social media accounts promoting it.
Yet, contrary to the Western media narrative, the crypto trade is very much alive. As revealed by CoinDesk insiders, individuals may still hold and trade crypto, provided they are willing to accept the absence of legal protections. DeHeng Law Offices, a veteran Chinese law firm, has stated in a post,
“At present, there are no laws and administrative regulations in China that prohibit Bitcoin trading activities.”
So, what about the prohibition?
“The Notice on Further Preventing and Disposing of the Risk of Virtual Currency Trading Speculation (Yinfa [2021] №237) issued by the People’s Bank of China and other ten departments on September 15, 2021, does not prohibit all trading activities based on virtual currency, but prohibits virtual currency as illegal financial activities. Related business activities.”
Therefore, the regulations in question do not explicitly prohibit retail holdings or outlaw peer-to-peer trading between individuals. Crypto trade has continued — and from July 2022 to June 2023, the local market received $86 billion worth of crypto.
China also boasts 84% of all blockchain patent applications in the world. Local authorities are actively exploring the applications of this technology across industries, including a CBDC (central bank digital currency) — the digital yuan called e-CNY.
No deadline has been announced. However, there are official plans to integrate e-CNY into WeChat, China’s biggest messaging app with a popular payment service.
Finally, the government of China itself is a crypto whale. In 2019, it seized 194,000 BTC and other cryptos from the PlusToken scam, forfeiting the assets to the national treasury.
Bitcoin tends to tumble in the weeks leading up to Lunar New Year and performs well through the Spring Festival. Thus, the pattern usually holds — although the yuan is not the top fiat currency in BTC trading, and China has lost its hash rate leadership to the US.
As the price typically drops before and after the holiday week, this calendar anomaly is sometimes construed as the “reverse” Santa Claus rally or the “reverse” January effect. The exact causes are debatable, and repetition is not guaranteed. Still, traders have reasons to anticipate higher volatility and growth through the period if the macro background is favorable.
Check out EarnBIT’s guides to other calendar effects: the Santa Claus rally, the Thanksgiving effect, and the Halloween effect. More coming soon! 🚀
🚀 Official website, CEX & ecosystem: https://earnbit.com/
