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Cryptocurrencies are known for volatility and some experts say crashes happen over the weekend.
“This has been a phenomenon in crypto for many years,” said Stephen McCain, associate professor of finance at the University of Oregon in Eugene, Oregon, and partner at Collab+Currency, a cryptocurrency-focused investment fund.
Experts say the fall could have a significant impact this weekend as regulators weigh the future of the digital currency. Here’s why these accidents are happening.
trading less on weekends
One of the reasons for weekend cryptocurrency volatility is fewer trades, said Amin Shams, assistant professor of finance at The Ohio State University in Columbus, Ohio.
“When volumes are low, the same trade size can move prices a lot,” he said.
With banks closed over the weekend, there is less trading because investors can’t add money to their accounts, McCann said.
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“You get panic moments in the market where there is a lot of selling pressure,” he said.
Usually, Asian banks open on Sunday night and follow US banks on Monday, McCon said.
In addition, there are crypto influencers like Tesla CEO Elon Musk, who “was a heavy hand on the crypto space,” said Tyrone Ross, CEO of Onramp Invest in New York.
When Musk tweeted something negative about bitcoin hours later, it could spark a wave of activity.
trading on margin
Shams said another reason for the weekend’s price volatility could be investors trading cryptocurrency on margin, which is borrowing money from exchanges to buy more assets.
When the price of a digital currency falls below a certain level, traders must repay the loan, which is known as a “margin call”.
But if investors do not cover the loan, the exchange may sell the digital currency to ensure that it gets back the money it borrowed.
Shams said that due to bank closures over the weekend, some traders may struggle to pay off borrowed funds as they cannot move money into their accounts, triggering a sell-off from exchanges.
“This will bring down the price further,” he said.
It is also possible that there may be a factor trying to artificially influence cryptocurrency prices.
“There are a lot of studies that show that there is [market] Manipulation,” Shams said.
For example, 2019 research shows how Tether, a digital currency pegged to the US dollar, could artificially inflate the prices of bitcoin and other cryptocurrencies during the 2007 boom.
But researchers still don’t know to what extent this happens, he said.
One theory points to so-called “spoofing”, which involves placing fake buy or sell orders to influence cryptocurrency prices by creating a false sense of supply and demand.
Some believe that this happens more often during the week, leading to an increase in the price of the digital currency. But this theory can only be speculation, he said.
Other experts say there are “mixed views” on these practices.
“I personally haven’t seen any conclusive evidence that suggests manipulation,” McCon said.
Whatever the reason for the volatility over the weekend, it presents challenges for regulators to weigh the approval of cryptocurrency-based exchange-traded funds.
While ETFs trade during the working week, investors can buy or sell cryptocurrency 24 hours per day, seven days per week, creating a mismatch for crypto ETFs, Shams said.
For example, if the digital currency market falls by 20% on Sunday, those looking to sell may be stuck with their crypto ETFs until the market reopens on Monday.
Securities and Exchange Commission Chairman Gary Gensler has called for greater investor protections for cryptocurrencies, indicating that more regulation may be necessary before the agency can approve crypto ETFs.
The SEC is currently reviewing the bitcoin and ethereum ETF applications of several companies.
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