Bitcoin crash as the Lunar New Year approaches—is it a pattern?

The Bitcoin market is crashing, and it may continue to get worse. More than $100 billion worth of cryptocurrency value has been lost so far. The trend seems to be bleak. The value of Bitcoin halved from $20,000 in December 2017 to $10,000 at its worst in January 2018. As the trend continues, the Bitcoin value could go way below $8,000.

The cryptocurrency market has been relatively more resilient than the traditional financial markets. The recent crash of Bitcoin, however, is not totally unexpected because it is partly seasonal. One to two months leading up to the Chinese New Year or Lunar New Year, Bitcoin notably dropped in value—primarily because of the spike in spending among Asians who celebrate the Chinese New Year. Similar to during the Christmas season, the weeks leading to the Lunar New Year in the East is marked by a rise in consumer spending.

Since the main bulk of bitcoins is in the hands of Chinese and South Koreans, their spending will directly affect Bitcoin’s value. During the festive season leading to the Lunar New Year, many Chinese and South Koreans exchange their bitcoins for other currencies. This is the lunar influence or more precisely, the Lunar Calendar influence on Bitcoin.

A drop ahead of the Chinese New Year

A clear pattern has emerged in the past few years: January is not the best month to invest in Bitcoin. The overall valuation trend of the cryptocurrency has been steadily increasing in a semi-logarithmic pattern since 2009 when it was created. However, there, the market cap of Bitcoin dips every January in recent years.

The graphs shown in CoinTelegraph clearly demonstrate the pattern. On January 14, 2015, the market cap value of Bitcoin dropped below $2.5 billion from $4.5 billion at the beginning of the month.

The same pattern can be seen in 2016 when the market cap value dropped to almost $5 billion on January 17 from the peak of more than $7 billion. This trend repeated in 2017 when it fell from more than $18 billion on January 5 to about $11 billion on January 13. Finally, this year, its value fell from the peak of almost $300 billion on January 7 down to about $155 billion on January 18.

Regulatory threats

The other main factors for the recent Bitcoin market crash are the threats of the Chinese and South Korean governments to crack down on the use of cryptocurrencies. As a result, many cryptocurrency owners in the two countries are now exchanging their digital holdings for regular currencies—causing Bitcoin to further crash.

While there are also bitcoin owners in the US and Europe, they are a minority compared to the Asian share of the market. These regions have not implemented significant legislation against Bitcoin except for the taxation when converted to fiat money. Bitcoins are legal in the European Union and in the US.

The current downward trend of the crypto market might just be a temporary trend. In all types of financial markets, periodic pullbacks are necessary for profitability. No market will go up forever, but periodic pullbacks allow them to have breathing spaces and periods of bullish trends.