Chinese New Year, also known as the Lunar New Year, can send the price of crypto on a wild ride. Here’s why.
The cryptocurrency market is in its infancy still, so nothing here is set in stone. But a very interesting phenomenon seems to be emerging. That is, in the few weeks before every Chinese New Year (or Lunar New Year in the wider world) the price of Bitcoin (BTC) and some other top cryptocurrencies drop in price.
For example, in 2019 the price of Bitcoin dropped from $3,491 to $3,397 during the holiday. In 2020, the price fell below $8.3k before Chinese New Year and only recovered on the last day of the holiday.
In 2021, there was an increase in price before the holiday, but it still dropped during Chinese New Year. And in 2022, the price dropped sharply just before the holiday but then rose again.
The Calendar Effect
This is starting to be known as the “calendar effect” and it also happens around the time of other major cultural events like Christmas, Easter and it even happens at tax season.
This effect has been happening in the traditional stock market for quite some time. In the traditional stock market, prices will fall leading up to the Christmas period. In traditional markets, this is called the ‘holiday effect’.
Then, the stock prices will rebound in the two days before Christmas. Traders call this effect the ‘Santa Claus rally.’ Usually, stock prices then rise right up until the first few days of January.
This year, in 2023, you need to watch out for the Chinese New Year effect, where crypto prices may see price dips. You also need to remember that what happens in previous years might not happen in 2023, because the crypto markets are anything if an unpredictable wild ride.
The “Chinese New Year effect” in 2023
It is expected that right about now that the price of bitcoin and some other cryptos will go down as the Chinese New Year hits. This year, the Lunar New Year starts on January 22nd and ends on January 24th.
Why does this happen? One theory is that a lot of people who celebrate the Lunar New may sell some of their crypto to have money to spend during the new year celebrations.
During the Lunar New Year, people all over the world give “red packets” filled with cash as gifts during the festival. These red packets are given to children, the elderly, and service personnel, and can contain a significant amount of money. Some bosses also give their employees red packets at this time. It’s an expensive holiday for a lot of people.
Also during this time, people are busy travelling. Many people who celebrate Lunar New Year go back to their home cities to celebrate with their families. Factories and businesses close for up to 2 weeks. This causes a decrease in trading activity for cryptocurrencies. People are too busy having fun to obsessively trade cryptocurrencies.
So if the price of your favourite cryptos start to dip in the next day or so, don’t panic. It could just be the Lunar New Year Effect. It will be good practice for holding our nerve when the tax season dip and the Christmas dip hit.