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This is why cryptocurrency crashes over the weekend



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Cryptocurrency It is known for its volatility and some experts say crashes tend to occur over the weekend.

“This has been a phenomenon in crypto for many years,” said Stephen McKeon, an associate professor of finance at the University of Oregon in Eugene, Oregon, and partner at cryptocurrencies. Collab+Currency Crypto-Focused Investment Fund Says

Experts say these weekend declines could have a big impact as regulators focus on the future of cryptocurrencies. This is why these crashes may occur.

Trade less on weekends

Amin Shams, an assistant professor of finance at Ohio State University in Columbus, Ohio, said one of the reasons for the volatility of crypto over the weekend was less trading.

“When the quantity is low The same trade size can move prices more,” he said.

When banks are closed for the weekend There are fewer trades because investors may not be able to add funds to their accounts, McKeon said.

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“You get a market panic period where there is a lot of selling pressure,” he said.

It typically rebounded on Sunday night as Asian banks opened and on Monday, according to U.S. banks, McKeon said.

There are also digital currency influencers, such as Tesla CEO Elon Musk, who are “waving heavily over the crypto space,”

; said Tyrone Ross, CEO of Onramp Invest in New York.

When Musk tweets something negative about bitcoin after hours It might spark a lot of activity.

Trading with margin

Another reason the price swings over the weekend could be that investors trade cryptocurrencies on margin. which is borrowing from exchanges to buy more assets, Shams said.

When cryptocurrency prices fall below a certain level Traders are required to repay the so-called loan. “Calling for collateral”

But if the investor does not cover the loan Exchanges may sell cryptocurrencies to ensure that the borrowed funds are received.

because the bank is closed for the weekend Some traders may have difficulty paying off borrowed capital. because the money cannot be transferred to the account This caused a sell-off on the exchange, Shams said.

“That will bring the price down further,” he added.

market

It could be that those trying to influence cryptocurrency prices may be a factor.

“There are a number of studies showing that there are [market] manipulation,” said Shams.

For example, research in 2019 shows that tether, a cryptocurrency tied to the US dollar, may have inflated bitcoin and other cryptocurrency prices during the 2007 boom.

But researchers still don’t know the extent to which it happened, he said.

I haven’t seen any conclusive evidence. pointing to embezzlement

Stephen McKeon

Associate Professor of Finance at the University of Oregon

One theory points to the so-called. “Forgery”, which involves fake buy or sell orders to influence cryptocurrency prices by creating false impressions. about supply and demand

Some believe this happens more often during the week. causing the price of cryptocurrencies to rise But the theory may be just speculation, he said.

Another expert said there were. “Diverse perspectives” on these practices

“I haven’t found any conclusive evidence yet. that points to manipulation,” McKeon said.

Crypto ETFs

Regardless of the cause of weekend fluctuations It presents a challenge for regulators weighing the approval of cryptocurrency-based exchange-traded funds.

While ETFs trade during the working week Investors can buy or sell cryptocurrencies 24 hours a day, 7 days a week. And it could create mismatches for crypto ETFs, Shams said.

For example, if the cryptocurrency market is down 20% on Sunday, those who want to sell may be stuck with their crypto ETF until the market reopens on Monday.

Gary Gensler, Chairman of the Securities and Exchange Commission Call for more investor protection for cryptocurrency This may require additional regulatory signaling before the agency approves a crypto ETF.

The SEC is investigating bitcoin and ethereum ETF applications from several companies.


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