2022 — Will the Year of the Tiger Roar in All It’s Glory? Analysis of Crypto Market + Lunar New Year Market Trends
Lunar New Year and the Crypto Market — is there a trend here in the market around this holiday? Is the Year of the Tiger, the year of Crypto?! VegaX takes a deep dive into the crypto market trends around this time over from 2016 –2022.
LUNAR NEW YEAR AND CRYPTO MARKETS
The Lunar New Year, Chinese Chunjie, Vietnamese Tet, Korean Seolnal, Tibetan Losar is a festival typically celebrated in Asian countries. It marks the first new moon of the Lunar calendar, therefore, it falls on different dates every year. This year the Lunar New Year is on the 1st of February.
Historically, the Lunar New Year has shown a startling influence on the short-term price cycles of crypto assets, with prices spiraling down in the days leading up to the new year. This article is an attempt to explain how this festival influences investor behavior and causes such events.
The data above is sourced from TradingView and compares the highest and the lowest price of bitcoin within two weeks leading up to the Lunar New Year. Quite evidently, the market has consistently witnessed risk-off behavior in the last six years.
This begs the question:
What causes investors to sell their crypto holdings during the Lunar New Year?
The Lunar New Year is a public holiday in many Asian countries where the festival is celebrated. People from around the globe travel back to their families to celebrate this occasion. Numerous research conducted on this subject concludes that the bearish price action of crypto assets during this time of the year is more about investor spending patterns and less about their sentiment on crypto assets. We have listed some of this data for you right here.
Market maker inactivity
The most significant market makers in the digital assets industry are institutions, particularly ones that make use of trading bots to conduct algorithmic trades. An article from CNBC reported that trading bots accounted for as much as 70–80% of crypto trading volume at a time. During the festival season like Lunar New Year, these facilities shut operations for some period resulting in massive liquidity scarcity. With less liquidity, crypto assets become more sensitive to small price movements.
A Drop in trading volume
Research conducted by CoinDesk reports that in the years 2019 and 2020, the trading volume on the most popular crypto exchanges for Chinese investors like Binance, OKEx, and Huobi Global was down significantly. Decreased volume leads to less liquidity, which makes those assets sensitive to small movements and leveraged positions susceptible to liquidations
Cash is King
One of the most popular traditions of the Lunar New Year is distributing gifts called ‘red packets’ to family and friends. The huge demand for cash to buy these gifts is met by cashing out one’s investments like stocks and crypto-assets.
A combination of spending behaviors, like the ones mentioned above is what has been causing the downfall of crypto assets during this time of the year.
Will history repeat itself?
The digital assets industry has witnessed a dramatic shift in power and influence in the past few years. The hostility of the Chinese government towards digital assets caused the exodus of Chinese bitcoin miners in 2021, who migrated to countries like the USA, Canada and, Kazakhstan in astronomical volumes.
The impact of China has reduced significantly
The miners in China contributed as much as 65% of the Bitcoin network hash power at the beginning of 2021. Post trading ban, China practically lost all of its hash rate, Chinese market makers shut operations and individual investors were forced to liquidate their holdings, killing a booming industry. This power vacuum has been filled by relatively crypto-friendly countries like the USA. With China not in a position to significantly influence the factors that drive the digital asset economy, it is unlikely that the Lunar New Year of 2022 will be able to influence the current crypto market cycle.
Here are also some technical metrics that signify digital assets are undervalued:
- Bitcoin hash rate is at an all-time high.
- The price action of this halving cycle is still incomplete.
- The TVL(Total Value Locked) in DeFi is at an ATH.
- DeFi crypto assets have been performing better than bitcoin.
Conclusion: 2022 — The Year of the Tiger 🐯
2020, being the year of the Rat, symbolized survival. The year 2021 belongs to the Ox, a symbol of strength, persistence, and wealth. The year of the Tiger is a beacon of making big changes, taking risks, and having positive energy. While transitioning into the post-pandemic economy, these qualities are exactly what an investor in the digital assets space needs to stay optimistic, confident, and diligent.
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