Cryptocurrency trading the not so new but ever evolving rave in the financial markets has a few complexities that differentiates it from the traditional assets trading markets. For one the crypto markets doesn’t sleep, it runs 24-7 with no breaks on the weekends.
As the market grows, racking up relevant and useful data for analysis, a salient occurrence has been noticed; the fact or should I say the theory that the market is susceptible to dumps/dumping during the weekends. Before drawing up any conclusions I would like to drop some points to back the claim.
Low trading volumes during the weekends
There are usually less trades during the weekends as the usual traditional markets are on break, this causes low trade volumes making the market susceptible to major market swings. When the volume is low, the same trade size can move prices a lot more.
“With banks closed over the weekend, there is less trading because investors may not be able to add money to their accounts” said Stephen Mckeon, associate professor of finance at the University of Oregon in Eugene, and a partner at Collab+ currency a cypto-currency focused investment fund.
Funds Hunt Volatility
As said earlier one of the peculiarities of the crypto market is that it trades 24/7 and with much volatility.
And with the entry of hedge funds and more traditional investment managers, the role of so-called algo trading has increased, contributing to bitcoin’s volatile weekends.
Algo traders in crypto markets use techniques similar to those deployed for mainstream assets.
One, known as time-weighted average price, allows traders to buy or sell a certain amount of bitcoin over a designated period. Another, volume-weighted average, lets traders place orders depending on the amount of volume in crypto markets at a given time.
But this technology exists alongside manual trading, whether by individuals or over-the-counter trading desks. And with increased weekend activity sparked by algos, manual traders must also work around the clock to capitalize on price moves.
“Funds are constantly looking for opportunities in the market and seek volatility, which often occurs during periods of less liquidity,” said Fernando Martínez, head of Americas at crypto trading firm OSL.
Another reason for weekend price swings may be investors trading cryptocurrency on margin, which is borrowing money from the exchanges to buy more assets, Shams said Amin Shams, assistant professor of finance at Ohio State University in Columbus, Ohio.
When digital currency prices dip below a certain level, traders must repay the loan, known as a “margin call.”
But if investors don’t cover the loan, exchanges may sell the digital currency to ensure they receive the borrowed money back. said Katy Dore. personal finance reporter CNBC.
With banks closed over the weekend, some traders may struggle to pay off the borrowed funds because they can’t move money into their accounts, triggering sell-offs from exchanges, Shams said. “That’s going to drop the price further,” he added.
In recent weeks the market dumps of the weekend is slowly forming a pattern with major rally to the upside during the weekdays, retail traders jump in with little regard and for fear of missing out on the bull market, as speculations rise about BTC reaching $100,000 by the end of the year, as the weekend arrives there is a major dump leaving many leaking their wounds. But to be on safe side one must follow strict money management plans and always use a stoploss and remember to HODL.