Here’s why cryptocurrency crashes on the weekends

Cryptocurrency is understood for volatility and a few consultants say crashes are likely to occur on weekends.

“This has been a phenomenon in crypto for several years,” stated Stephen McKeon, affiliate professor of finance at the University of Oregon in Eugene, Oregon, and associate at Collab+Currency, a cryptocurrency-focused funding fund. 

These weekend dips might have important results as regulators weigh the way forward for digital foreign money, consultants say. Here’s why these crashes could also be occurring.

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“You get moments of market panic where there’s a lot of selling pressure,” he stated. 

Typically, there is a rebound on Sunday evening as Asian banks open and into Monday as U.S. banks observe, McKeon stated. 

Plus, there are cryptocurrency influencers like Tesla CEO Elon Musk who “wave a heavy hand over the crypto space,” stated Tyrone Ross, CEO of Onramp Invest in New York.

When Musk tweets one thing adverse about bitcoin after hours, it might spark a wave of exercise.

Another cause for weekend value swings could also be traders buying and selling cryptocurrency on margin, which is borrowing cash from the exchanges to purchase extra property, Shams stated.

When digital foreign money costs dip under a sure stage, merchants should repay the mortgage, referred to as a “margin call.” 

But if traders do not cowl the mortgage, exchanges might promote the digital foreign money to make sure it receives the borrowed a refund.

With banks closed over the weekend, some merchants might battle to repay the borrowed funds as a result of they can not transfer cash into their accounts, triggering sell-offs from exchanges, Shams stated. 

“That’s going to drop the price further,” he added.

For instance, 2019 research reveals how tether, a digital foreign money tied to the U.S. greenback, might have artificially inflated bitcoin and different cryptocurrency costs throughout the 2007 increase.

But researchers nonetheless do not know the extent to which it occurs, he stated. 

One concept factors to so-called “spoofing,” involving faux purchase or promote orders to affect cryptocurrency costs by making a false sense of provide and demand. 

Some consider this occurs extra usually throughout the week, inflicting digital foreign money costs to rise. But this concept might solely be hypothesis, he stated.

Other consultants say there are “mixed views” on these practices. 

“I have not personally seen any conclusive evidence that suggests manipulation,” McKeon stated.

Regardless of the cause for weekend volatility, it presents challenges for regulators weighing the approval of cryptocurrency-based exchange-traded funds.

While ETFs commerce throughout the work week, traders can purchase or promote cryptocurrency 24 hours per day, seven days per week, and will create a mismatch for crypto ETFs, Shams stated.

For instance, if the digital foreign money market drops by 20% on a Sunday, these wanting to promote could also be caught with their crypto ETFs till the markets open once more on Monday. 

Securities and Exchange Commission chair Gary Gensler has known as for greater investor protections for cryptocurrency, signaling extra regulation could also be mandatory earlier than the company approves crypto ETFs. 

The SEC is at the moment reviewing bitcoin and ethereum ETF functions from a number of corporations.