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The pattern of cryptocurrency price movements (cryptocurrencies) is now always moving lower on the weekends. Weakening that often occurs at the weekend has been going on since last May.
On weekdays, namely Monday to Friday, crypto can also swing into the green zone. But when the weekend comes, crypto prices tend to reverse towards the red zone.
Maybe many people are wondering, why is that?
Cryptocurrencies are known to be quite volatile and some experts say the crash in the crypto market is likely to happen again this weekend.
“This has been a phenomenon in crypto for several years,” said Stephen McKeon, professor of finance at the University of Oregon at Eugene.
This weekend's decline may have a significant effect as regulators weigh the future of digital currencies.
Here's why crashes are now happening more often this weekend according to crypto experts.
Crypto trading traffic tends to be low on weekends
According to Amin Shams, assistant professor of finance at Columbus University in Ohio, one of the reasons cryptocurrencies are volatile on the weekends is that there are fewer transactions than weekdays.
"When transaction volume is low, trading traffic is fairly quiet, which can move prices even more," he said, quoted by CNBC International.
McKeon also argues that banks not operating during the weekend are also the reason crypto transactions tend to be quiet on weekends, as investors may not be able to add money to their accounts, as banks are closed.
Investors use margin when trading cryptoOn weekdays, namely Monday to Friday, crypto can also swing into the green zone. But when the weekend comes, crypto prices tend to reverse towards the red zone.
Maybe many people are wondering, why is that?
Cryptocurrencies are known to be quite volatile and some experts say the crash in the crypto market is likely to happen again this weekend.
“This has been a phenomenon in crypto for several years,” said Stephen McKeon, professor of finance at the University of Oregon at Eugene.
This weekend's decline may have a significant effect as regulators weigh the future of digital currencies.
Here's why crashes are now happening more often this weekend according to crypto experts.
Crypto trading traffic tends to be low on weekends
According to Amin Shams, assistant professor of finance at Columbus University in Ohio, one of the reasons cryptocurrencies are volatile on the weekends is that there are fewer transactions than weekdays.
"When transaction volume is low, trading traffic is fairly quiet, which can move prices even more," he said, quoted by CNBC International.
McKeon also argues that banks not operating during the weekend are also the reason crypto transactions tend to be quiet on weekends, as investors may not be able to add money to their accounts, as banks are closed.
Another reason that crypto prices weakened over the weekend may be because investors use margin for crypto trading, where investors borrow funds from crypto trading providers to buy more crypto assets.
When the price of a digital currency drops below a certain level, the trader must repay the loan, which is known as a margin call.
Banks that are not open on weekends some traders may find it a little difficult to pay off their borrowed funds from margin transactions because they can't move money into their accounts and trigger a force sell from the exchange.
Market Manipulation
Those who try to artificially influence the price of cryptocurrencies can be the driving factor for why crypto prices plummeted over the weekend.
“There is a lot of research that shows that there are parties who want to manipulate the market,” said Syams, quoted by CNBC International.
For example, a 2019 study showed how Tether could become the only digital currency that can be converted directly to United States (US) dollars.
The study also discusses how to artificially increase the price of Bitcoin and other cryptocurrencies during the crypto boom of 2017. But researchers still don't know the extent of that.
One theory that can be called spoofing, where the movement of cryptocurrencies is influenced by supply and demand of investors, where investors can buy or sell fictitious to influence the price of cryptocurrencies by creating false demand and supply.
Some researchers believe this has happened more frequently over the past week, causing the price of digital currencies to rise. But the researchers think that this theory may just be speculation.
Crypto ETF
Regardless of why crypto is volatile on the weekends, this presents a challenge for regulators considering exchange trade fund (ETF) based cryptocurrencies. Trading ETFs during the weekdays, investors can buy or sell cryptocurrencies 24 hours per day or seven days per week and can create a mismatch for crypto ETFs.
For example, if crypto in a major market is down 20% on Sunday, those looking to sell their cryptocurrency may be stuck in the ETF market until the market reopens on Monday.