Bitcoin price drop due to Lunar New Year? Has the 2024 CNY dump been cancelled?
Chinese New Year has a significant impact on cryptocurrency prices, with Bitcoin prices dropping in the months leading up to the new year. This article examines the trends and the possible reasons why they occur. Chinese New Year is celebrated on a different day each year based on the lunar calendar.
This year’s Lunar New Year begins on February 10th and ends on February 13th. During this period, many Chinese over-the-counter (OTC) services will be closed, leading to increased cryptocurrency volatility.
*Data based on Bitcoin price from CoinGecko. The pre-CNY high is considered the average candle price up to 7 days into the new year.
This period is a public holiday in China, and many employees travel to their hometowns every year to celebrate with their families. With a population of 1.386 billion, it represents the world’s largest short-term migration. During this period, all factories in China will be closed, with operations suspended for up to two weeks as logistics companies and suppliers slowly open. Chinese New Year is also celebrated in other Asian countries, including Hong Kong, Singapore, and South Korea (Korean New Year). China will also launch the ability to send red packets containing the digital currency eCNY/DCEP. However, it is important to note that during this period, cryptocurrency exchanges will continue to operate and facilitate trading around the clock.
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Lunar New Year dumps in 2019, 2020, 2021, 2022, 2023?
Bitcoin prices almost always fall in the weeks leading up to Chinese New Year.
for example, 2019, The price of Bitcoin steadily fell from $3,491 just before Lunar New Year to a low of $3,397 during the holiday season.
in 2020, the price fell below the resistance level of $8.3 million ahead of the Lunar New Year. By the first day of the holiday, it had recovered to US$8.5 million. But history was bound to repeat itself, falling below $8.3 million in one day. After that, prices remained stagnant, with a notable recovery only on the last day of the holiday.
in 2021, the tide seemed to be turning with a gradual increase from $32,000 to $39,000 in the first week of February and a huge two-day rally up to $48,000 in the days leading up to the festival. However, during the Lunar New Year period, the price still started to fall back to $46,200. Fortunately, this did not decimate the entire Chinese New Year rally.
in 2022, prices plunged below US$37 just before the holidays. Bitcoin prices subsequently surged to a high of over US$39,000 midway through the Lunar New Year holiday. But this euphoria did not last long, and on the last day of the Lunar New Year holiday, prices plummeted to US$36.5 million. Essentially undoing the initial price increase from a few days ago.
in 2023, prices soared a day before the New Year, hitting a high of US$23,282.40 on the first day of the Lunar New Year. During the holiday period prices fluctuated between US$22,500 and US$23,000. However, it ultimately closed at US$22,437.68.
Why does Bitcoin price plummet during the Chinese New Year period?
Decrease in trading volume?
Trading volumes on Binance, Huobi and OKEx, the most popular cryptocurrency exchanges for Chinese customers, fell during the Lunar New Year period, according to data compiled by CoinDesk Research. A decrease in transaction volume can also be seen every year in October, when China’s Golden Week (a one-week period celebrating national holidays) is held.
Having many highly leveraged traders all betting on Bitcoin price moving in one direction creates an opportunity for other large investors (whales) to move the price in another direction. Doing so would trigger a series of liquidations, sending the price of Bitcoin into free fall and causing massive losses for leveraged long-term traders. The whale can then “buy dip” at the expense of the “rekt” trader.
Market maker on vacation
It is no secret that market makers and trading bots operate in the cryptocurrency market. In fact, they account for a fraction of the market size. Market makers located in China and other Asian countries will suspend operations for 3-5 days due to public holidays. Market making can be automated through trading bots and algorithms, but humans still need to monitor day-to-day operations to ensure there are no malfunctions.
Market making operations are restricted during the Lunar New Year period. This results in increased market volatility and reduced liquidity.
Cashing in for the New Year
One possible reason why the price of Bitcoin is falling is because people are “cashing in” for the holidays. This is especially true in China, where lucky bundles containing cash are traditionally handed out to children and the elderly during festivals. These “red packets” symbolize good luck and prosperity and are the only time in China that giving cash is not taboo.
According to tradition, married couples should distribute red packets to unmarried young children, elderly people, and service staff. Company executives and managers must also give money to their subordinates, and some packets must be filled with the amount of the employee’s salary.
Because it requires huge amounts of cash, some suspect this tradition is responsible for the increase in Bitcoin sell orders before the Chinese New Year.
Decrease in Chinese OTC trading volume
Bitcoin is traded in China through over-the-counter (OTC) desks. These OTC desks can match orders from buyers and sellers and provide escrow services. The best desks include Binance OTC and Huobi OTC.
What is the Bitcoin price prediction for Lunar New Year 2024?
This year, Chinese analysts are already looking to the future and are optimistic about the Bitcoin price in the month following the Lunar New Year. They note that Bitcoin prices typically rise in the month following Chinese New Year. For example, in 2023, the Bitcoin price rose 11.15% in the month following the New Year, in 2022 it rose 13.9%, and in 2021 it rose 30.18%(!!).
The price is already rising from January 23, 2024, with a lowest price of US$38,678.18. The price rose sharply from February 7, 2024, reaching over US$46,000 on February 9, 2024! This is already predicted by some analysts on Weibo that prices will not fall and that a bull market will be welcomed during the Lunar New Year period.
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Frequently Asked Questions (FAQ)
Cryptocurrency analysts have found that the price of Bitcoin will almost always fall in the weeks leading up to Chinese New Year. Therefore, before and during the “Chinese New Year dump”, traders expect huge volatility in cryptocurrency prices.
Lunar New Year is the longest holiday in China. This period is the world’s largest short-term migration, with people returning to their hometowns to visit family. People also use cash to send money to their families and gift “red packets” to their children. Therefore, cryptocurrency prices plummet during the Chinese New Year because trading volumes drop when everyone has “cashed out” their cryptocurrencies or is busy celebrating.
This year’s Lunar New Year begins on February 10th and ends on February 13th.
