Bitcoin fell just one of its best weeks, surrendering about 40% over the seven days through Friday. It was best for anyone who expected the digital currency to take volatility this weekend.
It’s on Saturday and Sunday, when most other assets are barely budge, that Bitcoin tends to go especially nuts. Take the first weekend of 2021. Coming off a 300% gain last year, the world’s largest digital coin rose as much as 14% on January 2 and another 10% on January 3, a time when most of Wall Street was still in holiday mode. The exchanges were larger than on any day in the previous week and the largest intraday movements from the previous weekend, when it jumped 10% on December 26, according to Bloomberg data.
Bitcoin alone is not in trading all day, every day. What sets the coin in line is its price movements outside of established business hours. It is difficult to find prices for the dollar, for example, with money market participants usually agreeing to take weekends off. Bitcoin’s average swing on Saturday and Sunday in the fourth quarter, on the other hand, was at 1.5%.
Cryptocurrency weekend volatility spikes are due to one or two reasons. One is that it is held by very few people – about 2% of accounts control 95% of all available Bitcoin supply. If these whales trade when volumes are thin, prices will rise. Another is its market structure, which is made up of hundreds of unrelated exchanges that are in fact islands of their own liquidity.
“People always pick up Bitcoin as liquidity 24/7, 365, but that means you have very thin periods of liquidity,” said Nic Carter, a partner at the venture capital firm. is aimed at crypto Castle Island Ventures. “If you want to use $ 500 million of Bitcoin, you may want to do it during prime banking hours.”
The crypto market is relatively nascent. Bitcoin, the original crypto, made the move a little over 10 years ago. According to Greg Bunn, chief strategy officer at digital asset company CrossTower, the market remains highly fragmented in terms of infrastructure.
Many platforms operate under different standards and with “different philosophies,” said Bunn, who has spent decades with companies including Citadel and Deutsche Bank. But there is no centralized market structure similar to traditional assets, which are usually common in holdings and settlements, for example.
“If you think about the structure, that makes it helpful for things that are going to be very volatile and where you are going to have big movements,” he said. “Of course that will have an impact when people trade, when people are awake, when people look at the markets.”
To Catherine Coley at Binance.US, Bitcoin’s wild weekend patterns are a reminder her time trading currency in Hong Kong in the early 2010s. At times flexibility would come under control at lunchtime and around holidays. Professional traders, she says, tend to keep Monday to Friday schedules, so it makes sense that liquidity – or the ease with which trades can be made – would eventually decline- weeks.
What is seen as liquidity requires a stable supply of both buyers and sellers – easy in freeing up the value of one asset for another. Having fewer buyers than sellers – or vice versa – makes matters more difficult, a situation that usually leads to a spike or a fall in prices. Last weekend, the price of Bitcoin “completely ripped off low liquidity,” said Coley, chief executive of Binance.US. “In those illegal times, you are going to get prices that are a little quiet. ”
That could mean that someone with a large sell order can’t download a position over a weekend trade. “To some extent, it will be more difficult for them to reduce their risk,” she said. “So that’s where you can see these weekend price movements.”
No one knows for sure and theories explaining Bitcoin weekend action are enough. Teddy Fusaro at Bitwise Asset Management says it’s also possible for liquidity providers and market makers to work lightly on weekends, which could lead to volatility.
“It is a feature of the market that has always been there and we expect it to be a feature of the market that will continue to be in the future,” said Fusaro, the company’s chief operating officer. “Market-minded people would accept that the market should put a price on the idea that there could be less liquidity at the weekend. ”
Mati Greenspan, founder Quantum Economics says that while institutional players have been on the alert lately, retail investors could be returning to the space again, too. They played a big part in Bitcoin’s famous 2017 run – and many were fired when it fell the following year.
Bitcoin trading volume has gone up, hitting a recent record, with around $ 80 billion changing hands every week, according to data from the Messari researcher.
“We break through obstacles at high speeds,” Greenspan said. “All in all move from $ 10,000 to $ 40,000, this is on my mind and I say this as someone who saw 2013 and 2017 – it ‘s a lot bigger. ”
– Supported by Kenneth Sexton, and Lu Wang