Why a Chinese New Year Sell-Off May Not Happen This Year

This year’s Chinese New Year is just around the corner on February 12th. But unlike in previous years, some analysts and traders say the “Chinese New Year Dump,” a price for Bitcoin (BTC) that would fall during the holiday season, will not happen this year. Why? The impact of retailers in China has been reduced.

Some argue that the Chinese New Year dump will not happen this year as institutional investors in the US and Europe have been the main drivers of the current bull run. This is in contrast to the 2017 bull market, which was heavily driven by retail investors in Asia.

Meanwhile, in Chinese, many social media platforms are discussing whether the current Bitcoin bull market should take a break during the holiday season.

Concerns about the effect of the Chinese New Year are compounded by data showing that at least a handful of miners in China sold their bitcoin in January. Some speculate that the sale was triggered by bearish sentiment ahead of the New Year.

Cash is king, especially during the holiday season

“Chinese traders tend to withdraw their crypto assets and cash out,” Alex Zuo, vice president of China-based crypto wallet Cobo, told CoinDesk. “It’s exactly how people in the US would benefit from stocks before Christmas.”

“There is a decade-long tradition of giving money or ‘red parcels’ to family, friends and special people of interest [in China] during the Chinese New Year, ”said Felix Wang, managing director and partner in China for investment research firm Hedgeye Risk. “They need cash so they can liquidate some of their financial holdings, and that could put some pressure on some financial markets.”

Liquidity is another concern. Most stores are closed during the week of Chinese New Year, including over-the-counter service and crypto trading desks, as people in the Greater China area have at least five days off to reunite with their families and the holidays to celebrate.

Data compiled by CoinDesk Research shows that trading volumes on Binance, Huobi and OKEx – the most popular crypto exchanges for clients in China – have declined over the past two years during the Chinese New Year. The same decreased volume of trade also occurred in October each year when the Golden Holiday occurs in China.

Source: CoinDesk Research

Reduced liquidity and increased withdrawal activity expose the market to higher price volatility risks. Trading data from TradingView on Binance’s Bitcoin / USDT (Tether) pair shows that Bitcoin price has declined in the last three years leading up to the Chinese New Year.

By studying the 14-day price movement up to Chinese New Year’s day over the past three years, according to CoinDesk’s BPI data, Bitcoin price fell as people started taking days off to prepare for vacation. In 2018, Bitcoin price fell to $ 5,947.40, a 37.2% decrease from the high of $ 9,471.46 over the 14-day period. Over the same period, Bitcoin price fell to $ 3,346.14 in 2019, down 8.3% from a previous high of $ 3,648.50. For 2020, the decrease was 10.5% from $ 9,181.97 to $ 8,220.87.

Trading Bitcoin / Tether pairs from Binance during the 2018 Chinese New Year

Source: TradingView

Trading Bitcoin / Tether pairs from Binance during the 2019 Chinese New Year

Source: TradingView

Trading Bitcoin / Tether Pairs from Binance during Chinese New Year 2020

Source: TradingView

Why 2021 could be different

As fate would have it, 2021 will be the year of the ox on the Chinese lunar calendar, a bullish omen. While some may have sold their Bitcoin, a large number of traders and investors in China looking to a continued positive market trend appear to be holding their BTC in the new year.

Cynthia Wu, director of business development and sales at Hong Kong-based crypto trading service provider Matrixport, told CoinDesk that she had not seen a significant increase in Bitcoin sales from her company’s mining customers, other than a slight increase over the holidays.

Mining companies “have to pay their employees annual bonuses,” said Wu on the Chinese New Year. “It’s just seasonal behavior.”

Lei Tong, general manager of financial services at Hong Kong-based crypto lender Babel, told CoinDesk the company had been repaid by a few Chinese mining companies, an indication that these miners have not yet sold a large portion of their Bitcoin holdings. Babel enables Bitcoin mining companies to use their machines as collateral for loans, as CoinDesk previously reported.

At OKEx crypto exchange, Robbie Liu, market analyst at OKEx Insights, OKEx Insights, told CoinDesk that there have been no “unusual fluctuations” in the exchange’s USDT / Chinese yuan rate recently and that there have been none this year I had liquidity problems.

As of press time, Binance and Huobi have not responded to CoinDesk’s requests for comment.

“This year’s market was very different from previous years and we are seeing very limited effects from [Chinese] Retailer Behaviors “like cashing out, shixing” Discus Fish “Mao, co-founder of F2Pool, told CoinDesk. “The current market is driven by institutional money and moves with the emotions of these Western institutions. We cannot just come to any conclusions [bitcoin’s] Price evolution based on retailer behavior. “

An additional factor: China’s crackdown on OTC desks

China’s crackdown on the over-the-counter (OTC) service is another possible reason fewer people are paying out before the New Year, according to those familiar with the matter.

As CoinDesk previously reported, Chinese crypto investors using OTC traders have faced the challenge of liquidating their crypto holdings for cash because the Chinese police frozen OTC-related bank accounts and cards while the Chinese government cracked down on money laundering Cryptocurrencies prevailed.

According to a February 5 report by China-based blockchain analytics firm PeckShield released on February 5, unregulated digital currency outflows totaling $ 17.5 billion in 2020 increased 51% from 2019.

A PeckShield representative told CoinDesk that some crypto users on major crypto exchanges may have frozen their bank accounts because their OTC transactions may have inadvertently engaged in money laundering activities without realizing it.

“These accounts were ‘contaminated’ and have been temporarily frozen by the Chinese authorities,” said the representative.

According to PeckShield, the crackdown on OTC-related money laundering activities and the so-called “card freezing” continued until 2021. The Chinese central bank and the state foreign exchange administration recently released a new notice to further assist banks in conducting their cross-border business and to step up the fight against money laundering and terrorist financing.

Notably, at least one key Huobi executive is still in detention in China due to investigations into Huobi’s OTC trading business.

“It was so easy to sell your cryptocurrencies through OTC desks and instantly convert them to Chinese yuan,” a source told CoinDesk, speaking of the condition of anonymity due to the sensitivity of the subject. “It is very likely that your bank accounts will be frozen this year if the transactions involve these OTC traders.”

COVID-19 remains a wild card

Although the coronavirus pandemic in China is being treated as if it were well under control compared to most western countries, a new number of cases over the past month prompted the Chinese government to tighten travel restrictions in the country during the holiday season .

Some say the uncertainty surrounding COVID-19 restrictions during the holiday season could have an impact on the crypto market.

Wang of Hedgeye, whose research focuses on the Chinese stock markets, has seen new and strong retail interest in the Chinese financial market since December, as he is ready to invest in China, and a multitude of Chinese companies going public.

Data from a December report by the China Securities Depository and Clearing Corporation shows that there were more than 1.6 million newly registered individual stock investors in China in December alone, almost twice as many as last year.

With people unable to travel and with the exchange closed during the holiday week, there could be some negative impact on the crypto market, according to Wang.

Wang notes that mainland Chinese stock exchanges are moving in the opposite direction of Macau gambling revenues and visits.

“Sometimes there is an inverse correlation [between stock price and Macau’s casino business]”Said Wang.” Because if you can’t bet on the stock exchange, you’re playing your money in casinos.

A possible sign for the future could have been what just happened in the US, where retailers rushed to crypto when frustrated by the restrictions on buying stocks on online platforms like Robinhood.

Whether this means that there may be more people turning to crypto trading in China during the holiday season remains unclear.