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Cryptocurrencies are known for volatility, and some experts say crashes tend to occur on weekends.
“This has been a cryptocurrency phenomenon for several years,” said Stephen McKeon, an associate professor at the University of Oregon at Eugene and a partner in Collab + Currency, a cryptocurrency-focused investment fund. ..
These weekend dips can have a big impact, as regulators are looking into the future of digital currencies, experts say. The reasons why these crashes may have occurred are as follows:
Amin Shams, an assistant professor of finance at The Ohio State University in Columbus, Ohio, said one of the reasons for the volatility of cryptocurrencies over the weekend is low trading.
“If the volume of transactions is small, prices can fluctuate significantly at the same transaction size,” he said.
When banks are closed over the weekend, investors may not be able to add money to their accounts, resulting in fewer transactions, McKeon said.
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“We are entering a moment of market panic with high selling pressure,” he said.
According to McKeon, Asian banks usually open on Sunday night, followed by US banks on Monday with a rebound.
If Musk tweeted negative things about Bitcoin overtime, a wave of activity could occur.
Another reason for weekend price volatility may be investor trading Margin cryptocurrency, Borrowing money from the exchange to buy more assets, Shams said.
If the price of a digital currency falls below a certain level, the trader will have to repay a loan called a “margin call”.
However, if the investor does not cover the loan, the exchange may sell digital currencies to ensure that the borrowed money is received.
According to Shams, some traders struggle to repay their borrowed money because the bank was closed over the weekend, preventing them from transferring funds to their accounts and causing them to sell from the exchange.
“It will lower prices even further,” he added.
It could also be due to someone trying to artificially influence the price of cryptocurrencies.
“There are many studies that show that [market] Operation “.
For example 2019 survey Indicates that Tether, the digital currency associated with the US dollar, may have artificially soared the prices of Bitcoin and other cryptocurrencies during the 2017 boom.
But researchers still don’t know how much it will happen, he said.
One theory points out so-called spoofing. It has fake buy and sell orders that affect the price of cryptocurrencies by creating a false sense of supply and demand.
Some people believe that this happens more often during the week and causes the price of digital currencies to rise. But he said this theory might be just a guess.
Other experts say there is a “mixed view” of these practices.
“I have never personally seen definitive evidence suggesting an operation,” McKeon said.
Regardless of the reason for weekend volatility, it presents challenges for considering regulatory approvals. Cryptocurrency-based Exchange Traded Fund..
ETFs trade on weekdays, but investors can buy and sell cryptocurrencies 24 hours a day, 7 days a week, which can lead to crypto ETF mismatches, Shams said.
For example, if the digital currency market fell 20% on Sunday, anyone who wants to sell could get stuck in a crypto ETF until the market reopens on Monday.
Securities and Exchange Commission Chairman Gary Gensler Strengthening investor protection against cryptocurrencies, You may need to notify more regulations before an agency approves a crypto ETF.
The SEC is currently considering Bitcoin and Ethereum ETF applications from several companies.
Correction: Bitcoin and other cryptocurrencies boomed in 2017. Earlier versions misunderstood the year.
That’s why cryptocurrencies crash on weekends
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