The effect of ‘Chinese people withdrawing money for Tet’ may not play out as many people fear

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2023-01-18 23:19:41

In 2022, we have seen a wave of collapse from many organizations/individuals in the industry. This is considered the most difficult year in nearly 15 years of crypto formation. Confidence among investors also waned from events such as FTX, Luna… The economic situation as well as the value of cryptocurrencies have plummeted. The old cycle is about to end to welcome a 2023 with more expectations.

However, history has shown that during the Lunar New Year, the value of Bitcoin and many other cryptocurrencies tends to sell off. Concerns about Tet effects are increasing, leading to negative sentiment ahead of the new year.

Crypto’s “New Year’s Eve”

China is the cradle of the Lunar New Year, home to a large proportion of population as well as a large number of Bitcoin miners. According to Kevin Rooke, the Chinese government holds more than 194,000 BTC, accounting for 0.9% of the total supply of Bitcoin (reported from 2021).

After the government crackdown, the cryptocurrency mining industry in China gradually declined. Some had to cease operations and evacuate to other territories. This incident helped the Bitcoin mining situation gradually stabilize. Distributing miners in many countries around the world, helping to keep the market from being inflated. More importantly, the suppression against a country that owns too much Bitcoin like China has been limited.

Tet is a time of many changes, especially the crypto market. There are many reasons for the change such as economics, politics, supply and demand, investor sentiment… in countries that own a lot of Bitcoin.

This year’s Lunar New Year comes earlier than expected and is held over the three days of January 22, 23 and 24. Preparations for Tet are often predicted to trigger a series of liquidations in the market, as buying volume increases. decrease the trend that the cryptocurrency will gradually depreciate. In a word, Tet is an opportunity for investors to “cashout” to buy Tet, limiting buying, causing the market to have a strong selling force.

According to recorded data, in the weeks leading up to Tet, large-value cryptocurrencies often drop significantly. For example, in 2019, the price of Bitcoin gradually dropped from $3.9 to $3.3 during the holiday period.

Before Tet 2020, Bitcoin price also dropped deep below the resistance of $8,300, and recovered to $8,500. However, history doesn’t repeat itself a second time, the Bitcoin price fell more heavily on the third day.

Bitcoin price during Tet period 12/02/2021 – 15/02/2021 (according to CoinGecko)

2021 is considered a golden year for Bitcoin, investor fervor soars as the cryptocurrency’s value reaches $32,000 to a peak of $48,000. However, that growth was thwarted, Bitcoin price falling to $ 46,200 to the disappointment of many investors.

With the seemingly lost fall, many people choose to invest in the old trend. They decided to sell Bitcoin before Tet instead of suffering losses like in the past. However, in 2022, after falling to $ 37,000, Bitcoin exploded to $ 39,000, causing many investors to “ruffle their hair” when they missed the opportunity.


Investor sentiment witnessed a falling market

Excitement led to FOMO sentiment, many people decided to jump into the “game” even though Tet was approaching.History once again repeated, Bitcoin plummeted to $ 36,500 on the last day of the holiday. “Unfortunate things no one wants” was the catchphrase of many investors at that time.

Cash is king during Tet!?

Because the demand for cash on the occasion of Tet is often higher than usual, so the tendency to exchange and withdraw crypto assets is also more. This is the main cause of the annual Lunar New Year effect.

Many Chinese entrepreneurs tend to sell cryptocurrencies and exchange them for cash for storage, said Alex Zou, vice president of China-based Cobo e-wallet. The trend is similar to how Americans profit from holding stocks before Christmas, he added.

According to Felix Wang, CEO and partner of Hedgeye, people often have a tradition of giving each other lucky money at the beginning of the new year, the custom is called lucky money. Therefore, beautiful and new cash will be prioritized for these occasions.

Liquidity is the top concern during Tet holidays, most businesses choose to close instead of operating throughout. Many employees at the end of the year were also laid off due to staff reduction issues. For countries with large populations such as China, South Korea… the above situation is likely to be more than that of developing countries.

People without a job, and the enjoyment of money, make the demand for cash in Eastern countries increase. Family members have to sell properties in exchange for cash to pay for living expenses due to lack of income.

According to a report from Coindesk Research, trading volume on centralized exchanges like Binance, Huobi, and OKEx has decreased significantly over the past two years. Liquidity decreases, withdrawals increase, markets suffer and price volatility is higher.


Weekly trading volume of Binance, Huobi and OKEx (according to CoinDesk)

Price action is often taken place during this period, the price chart in crypto reflects the general sentiment of the crowd. Most large investors (also known as whales) will usually go against the majority mentality, the price changes according to the movement of money. The cases of “empty hands” also come from here, coins reduce investor fear and sell off, the rest have to be liquidated because of addiction to leverage.

Tet 2023 may be different

Many analysts believe that the market is likely to rebound soon after Tet, due to a slight increase in the unemployment rate in China (from October 2020). They confirmed that investors’ concerns will be somewhat alleviated through this positive news.

After a long period of “hibernation”, on January 12, 2023, Bitcoin and altcoins rebounded, which made many people excited, some suggested that this is an opportunity to get rich during this Tet.


Bitcoin price near Tet 2023 (according to CoinGecko)

But is this a trap like 2022?

Indeed, many analysts say that it is still too early to judge anything, encouraging people to be cautious. The above arguments have partly eased the anxiety of the crowd in investors, as evidenced by the fear & greed index being at a stable level.


Crypto Greed and Fear Index (according to Alternative)

To date, the bear market has dominated for 415 days, the longest in Bitcoin history. However, a new growth cycle is expected by many investors.

In the first quarter of 2023, Carol Alexander, a professor of finance at the University of Sussex, suggested that the Bitcoin price could return to $30,000 and then increase sharply. “The market will increase with more control, not the leap as before”Alexander shared more.

Bitcoin bull Tim Drapper has a rather bullish outlook on the market from 2022 and intends to use that prediction for this year as well. Even after witnessing the demise of FTX, he still has a strong belief in crypto.

But predicting the price of Bitcoin will be useless when the range of cryptocurrencies is very large, and they are also high-risk markets, said financial analyst at AJ Bell, Laith Khalaf. Unpredictable market movements accompanied by human psychology are easily changed, leading to market reversal is understandable.

The cryptocurrency ecosystem is growing rapidly, the new phase of 2023 is a cycle to look forward to. But the unpredictable nature of cryptocurrencies makes it difficult to answer exactly when prices will stop falling, said Morningstar senior researcher Madeline Hume.

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