Chinese New Year takes place this Sunday, January 22, and will mark the start of a week-long holiday in China. This event is often accompanied by high volatility in the cryptocurrency market.
Called “Golden Week”, it is the most important Chinese holiday in China. Each year celebrates one of the calendar’s twelve animals, with 2023 being the “year of the rat.” Therefore, the Shanghai and Shenzhen stock exchanges will be closed from next Monday to Friday (January 23 to 27), what will impact the stock and cryptocurrency markets, due to the huge volumes that will be withdrawn from global markets.
The lunar year of 2022 caused the Bitcoin price to rally
The 2022 Chinese New Year (the year of the tiger) began on Tuesday, February 1 (green arrow in the graph below). Golden Week therefore took place from February 1 to 8 (in dark gray).
Bitcoin price (BTC). has significantly increased during that week, but then took a precipitous fall, losing all of its previous gains.
That said, the most interesting element of this period is the massive increase in relative volatility, which led to an almost six-month high on February 8, 2022 (green circle), the last day of the gold week.
As noted above, the low volume (black arrow) displayed this week could explain this volatility.
Knowing that Bitcoin subsequently lost all of its gains, we cannot conclude that the Golden Week had any lasting effects on the price of the crypto asset. That said, its higher volatility right now may present a wealth of opportunity for day trading.
2021: low volume and medium volatility
In 2021, the Chinese New Year (the Year of the Ox) started on Friday, September 12 (green arrow in the chart below). The price of Bitcoin soared over the next seven days, peaking two days after Golden Week (highlighted in dark grey), on February 21st. Just like the year 2022, the asset lost all of its gains soon after.
The golden week was further characterized by very low volume (black arrow), which ultimately increased during the subsequent price decline (red arrow).
Interestingly, volatility was not as high as it was in 2022. It was actually slightly below average (red circle). This could be explained by the fact that it is at an extreme level before the new year and that the relative volatility has therefore not increased. This data is confirmed if we look at volatility in absolute terms (green circle), which has reached a very high level of 3100 points.
To conclude, the week following the Chinese New Year is therefore historically associated with very low volumes and medium to high volatility for Bitcoin and, by extension, the entire cryptocurrency market.
This phenomenon is probably explained by the closure of the Chinese stock exchanges; hence, due to low volumes during this period, prices move more easily.
Interestingly, the price of Bitcoin rose significantly in 2021 and 2022 before losing all of its gains thereafter.
Moral of the story: when the Chinese rat comes out of hiding, Bitcoin jumps by surprise.
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