What is a ‘ CALENDAR EFFECT’ and How it Affect the Digital Assets Market?
Published on May 7, 2019
The ‘calendar effect’ is a type of market anomaly that seemed to be related to the Calendar (such as days of the week, vacation days and even tax season). The most studied calendar effect would be the ‘Holiday Effects’ on stocks markets where stock returns tend to be abnormally high, with spikes in trading volumes on the last trading day prior to major holidays such as Thanksgiving and Christmas.
Seasonal characteristics can be introduced into markets when sentiments and behaviours of investors are affected by scheduled events in the calendar. After the price rallies that happened in 2013 and 2017, we know that cryptocurrency markets are very reliant on the sentiment of people and barely anchored to any particular fundamental value (except perhaps the cost of mining). Therefore, we can assume that calendar-related anomalies are likely to be present and BTC prices are likely to exhibit seasonal element.
Figure 1: Decomposition of additive time series.
BTC Dip prior to Chinese New Year
Since 2014 as the market gradually matures with increased adoption of Bitcoin after the first rally in 2013, there seemed to be a consistent pattern where a dip in BTC price is observed at the start of the year and the dip continues towards Chinese New Year (denoted by area highlighted in grey) before a slight recovery takes place thereafter.
Figure 2: Consistencies in price changes weeks before Chinese New Year
As the Chinese New Year takes place at the early beginning of 5 and 6 February 2019, the ‘Chinese New Year Effect’ can be also known as ‘Reverse January Effect.’. This is in relations through an observed calendar-related anomaly, where BTC prices tend to dip every January, which is coincidentally always 4–6 weeks before Chinese New Year.
Figure 3: BTC prices years comparison
The ‘Chinese New Year effect’ is of based that despite the unfavourable regulations, the majority of bitcoins are likely to be held by Chinese. The chart shown below further justify this statement and also explained how Chinese new year might be one of the driving factors of the dip in BTC prices every January.
We can also observe a counter-cyclical relationship between BTC prices and trading volumes (both OTC and exchange) in recent years: spikes in Chinese Yuan-denominated BTC trading volume are followed by persistent fall in prices in the period before Chinese New Year.
Figure 6: Countercyclical relationship between BTC prices and CNY-denominated trading volumes observed in recent years.
Figure 7: Chinese New Year price heatmap dated by days.
Looking at the price changes 30 days before and after Chinese New Year from 2012 to 2018, we observe that price changes tend to be negative prior to Chinese New Year from 2014 onwards and turn positive shortly after Chinese New Year (exhibiting slight recovery of the market). Also, the magnitude of price changes tends to be smaller just a few days before and after the Chinese New Year.
There might be some sort of relationship between fall in BTC prices and the collective behaviour of cashing out of Bitcoin by Chinese BTC holders for spending during Chinese New Year, though not proven a causal.
Signs are not compelling enough because if that is the case, ‘Chinese New Year’ effect should be visible in other markets, notably in mutual funds and gold since they make up a significant proportion of risky asset allocation of private households in China.