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Does Chinese New Year Really Affect the Bitcoin Market?

A few days from now, on the 12th of February, China celebrates its New Year. The massive upcoming event has been a topic of conversation for many cryptocurrency investors who choose to buy Bitcoin in the current times of economic uncertainty.

 

For those long enough in the market, you may have noticed the price of the crypto markets tends to get rather volatile around this period of time. In 2019 we saw Bitcoin’s interest spike during this time. In 2020 we saw the price of Bitcoin drop massively during the weeks following the Chinese new year, mainly due to COVID19.

 

But how will the upcoming Chinese New Year affect the crypto markets? In the following chapters, we will find out.

China as a capital of innovation

Over the past couple of years, we have witnessed China making leaps of progress in its technological developments as well as its position in the crypto markets.

 

Large EV companies (NIO) seem to be growing in popularity and are almost ready to go head to head against industry elites like Apple. The same can be said for other brands that seem to infiltrate the Western economy (Xiaomi, One, etc.)

 

Aside from tech progress, we also see mining initiatives raise further. At the moment of this writing, China already has more than 51% of the total hashing power in the Bitcoin mining network. The country has the largest mining pools, which the government oversees.

 

Aside from that, it is also important to touch upon its progress in the area of cryptocurrency exchanges. In a few short years, we saw Chinese trading platform Binance becoming the go-to exchange for most traders. Currently, they offer the most luring rewards and promotions for new users who wish to enter the crypto space.

Tying it up with national celebrations

One could say that large national celebrations are also a cause for price declines. People sell crypto to purchase gifts, invest for the year ahead, increase their cash positions, etc. That is certainly a valid case, as we have seen the price of cryptocurrencies drop right before the event takes place. This will however most likely not happen as, based on historical patterns, we should expect to see a pump in price shortly after ±30% price declines in the market. And we have just bottomed out at $30.000 after a surge to the $42000 price point.

 

The bullish scenario is more likely and linked with many positive events. To start, Michael Saylor and MicroStrategy are hosting an institutional seminar in the early days of February, to help large companies invest (part of) their cash reserves in Bitcoin. February is also the month that we will get to see the Q4 reports of public companies which will reveal which of them have decided to allocate part of their cash reserves into the popular cryptocurrency. Finally, February is also the month that (supposedly) the Biden administration will reach a final decision on the bailout plan of $1.9 trillion USD that is scheduled, in order to strengthen the US economy.

 

This year, in the Chinese calendar, is the year of the bull. And by looking at all the events that we can expect, the label surely seems to be fitting. In our opinion, the upcoming Chinese New Year will not have a direct effect upon the Bitcoin price, but other events during the same time period will eventually lead to a growth in the coin’s value. This, at least, seems to be the most realistic scenario when looking at bitcoin’s performance during the same period in previous market cycles.

Looking ahead

Many investors tend to look at national celebrations as individual market drivers. These are usually investors that do not have an understanding of market dynamics. The truth is that most investors are now more aware of Bitcoin’s long term potential, and will thus be more hesitant to cash out their coins for small-time purchases. 

 

On the other hand, cashing out is slowly becoming a more complex procedure, as China’s economy is going fully digital. The country has already concluded testings of its national digital currency (digital Yuan) and the results seem very promising. 

 

Very soon, the whole country will be fueled by blockchain technology, but central governments will have a saying in most transactions (apart from Bitcoin). It is, therefore, less likely that market sentiment will change during days like these, and we can expect a decrease in volatility in the coming years. As for this New Years, however, all options are still open. We are eagerly waiting to see how the event will unfold and the effect it will have on the price of BTC.

 

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