Bitcoin recorded just one of its best weeks and rose about 40% during the seven days to Friday. Anyone expecting the infamous volatile digital currency to take a breather this weekend has been more tense.
It is on Saturdays and Sundays, when most other assets are barely emerging, that Bitcoin is particularly trending. Take the first weekend of 2021. Come from a 300% increase last year, the largest digital currency in the world rose by 14% and 2 January and another 10% 3 January period when most of Wall Street was still in holiday mode. The swing was greater than on any weekday in the previous two weeks and the biggest intraday movements since the weekend before, when it jumped by 10% on December 26, according to Bloomberg data.
Bitcoin is not alone in trading all day, every day. What distinguishes the currency is how large its price fluctuations are outside the established working hours. It is difficult to find prices for the dollar, for example, with forex market participants usually agreeing to take off on weekends. The average swing of Bitcoin on Saturdays and Sundays during the fourth quarter, on the other hand, was 1.5%.
The volatility gains over the weekend are due to a number of factors. The one is that it owns relatively few people – about 2% of the accounts control 95% of the available Bitcoin offering. If these whales trade when the volumes are small, the price fluctuations will increase. The other is the market structure that consists of hundreds of disconnected exchanges that are in fact their own islands of liquidity.
“People always call Bitcoin 24/7, 365 liquidity, but what it really means is that you have periods of very thin liquidity,” said Nic Carter, a partner at crypto-focused venture firm Castle Island Ventures. “If you want to deploy $ 500 million of Bitcoin, you probably want to do it during core banking hours.”
The crypto market is relatively emerging. Bitcoin, the original crypto, generated the movement a little over ten years ago. According to Greg Bunn, strategic head of the digital asset industry CrossTower, the market remains hugely fragmented from an infrastructure point of view.
Many platforms operate under different standards and with ‘different philosophies’, Bunn said. He has spent decades with businesses, including Citadel and Deutsche Bank. Yet it lacks a centralized market structure similar to that of traditional assets, which, for example, usually have common preservation and settlement.
“If you think about the structure, then it’s conducive to things that are going to be very volatile and where you’re moving big,” he said. “It’s naturally influenced by when people trade, when people are awake, when people look at the markets.”
For Binance.US’s Catherine Coley, Bitcoin’s Wild Weekend Patterns Remind It her time trading currencies in Hong Kong in the early 2010s. Volatility sometimes dampened during lunch and around holidays. According to her, professional traders tend to keep schedules from Monday to Friday, so it makes sense that liquidity – or how easily an asset can be traded – will decrease over weekends.
What is seen as liquidity requires a constant supply of both buyers and sellers – an ease of releasing the value of one asset for another. If there are fewer buyers than sellers – or vice versa – then it makes transactions more difficult, a situation that usually leads to an increase or price collision. Last weekend, Bitcoin’s price ‘absolutely hit low liquidity’, said Coley, who is Binance.US ‘CEO. “In these periods of invalid times, you’ll get some depressing prices.”
This could mean that someone with a large sales order may not be able to easily download a position during the weekend trade. “To some extent, it’s going to be harder for them to take the risk they have,” she said. “This is where you see these weekend movements of dramatic price increases.”
No one knows for sure and theories that explain Bitcoin’s weekend action abound. Teddy Fusaro of Bitwise Asset Management says it is also possible that liquidity providers and market makers are lightly staffed over weekends, which could lead to volatility.
“This is a feature of the market that has always been there and we expect it to be a feature of the market that will remain in the future,” said Fusaro, chief operating officer of the company. “Effective market hypothesis will assume that the market should price in the idea that there may be less liquidity on weekends.”
Mati Greenspan, founder of Quantum Economics says that although institutional players have been in the spotlight recently, retail investors can re-enter space. They played a major role in the infamous run-up of Bitcoin in 2017 – and many burned when it crashed the following year.
Bitcoin’s trading volume has increased and recently reached a record high, with about $ 80 billion changing hands weekly. according to data from researcher Messari.
“We break through obstacles with incredible speed,” Greenspan said. ‘This whole moves from $ 10,000 to $ 40,000, it’s amazing and I say it as someone who saw 2013 and 2017 – it’s just a lot bigger. ”
– With the help of Kenneth Sexton and Lu Wang