The weekend’s depreciating trend is likely to give the US Securities and Exchange Commission more consideration when approving investment funds.
Bitcoin and cryptocurrencies in general tend to be highly volatile over the weekend. This is a phenomenon that has happened in the past few years, says Stephen McKeon, Associate Professor of Finance at the University of Oregon and Collab + Currency partner.
Weekend price drops can have a significant impact on the policies governing the crypto market. According to CNBC, there are several reasons for this phenomenon.
Fewer transactions on weekends
Amin Shams, a finance lecturer at Ohio State University in Columbus, Ohio, said that one of the reasons cryptocurrencies are volatile over the weekend is because there are fewer transactions.
“When the number of transactions is low, the same size of transactions can push the price up a lot,” he said.
McKeon said that because the bank is closed at the weekend, it may take more procedures for investors to transfer more money to the account, which makes it difficult to create new transactions.
Usually, this situation ends on Sunday night when Asian banks open and at the latest on Monday, when US banks also reopen later, McKeon added.
Additionally, Tyrone Ross, CEO of Onramp Invest in New York, added that the trend of less trading on weekends can also be traced back to influencers like Elon Musk.
When Musk posts something negative about Bitcoin late on Friday, it could send a negative wave to the market over the weekend.
Margin trading
Another reason for the weekend’s price volatility is investors’ margin trading, which means borrowing money from exchanges to buy more assets, Shams said.
When the Bitcoin price drops to a certain level, traders have to repay the previously borrowed amount. This action is often referred to as a “margin call”. However, if investors are unable to repay the loan, exchanges are entitled to sell the crypto asset to recover the loan amount.
With banks closed over the weekend, some investors had trouble repaying their loans because they were unable to transfer funds into their accounts, leading to a sell-off from exchanges, Shams said.
Market manipulation
Professor Shams also does not rule out the possibility that there are people manipulating the cryptocurrency market. The fact that someone is trying to create fake effects to manipulate the market can also be a factor, and there is a lot of research demonstrating manipulation in this area.
A 2019 study showed how Tether, a digital currency pegged to the US dollar, was able to inflate the price of Bitcoin and other cryptocurrencies during the boom of this market in 2017.
In addition, another theory makes the argument of fake buy or sell orders, intended to influence the price of cryptocurrencies by creating a false sense of supply and demand.
Some believe that this usually happens on weekdays, causing cryptocurrency prices to skyrocket, but experts like Shams think this assumption could be mere speculation.
Regardless of the reason for the weekend volatility, this situation poses challenges for regulators considering approving crypto exchange-traded funds.
For example, while a Bitcoin ETF trades during the business week, freelance investors can buy or sell 24/7, which can create a disparity between the price in the fund and the actual price. .
For instance, if the market drops 20% on Sunday, those looking to sell could be stuck with the ETF until the market reopens on Monday.
US Securities and Exchange Commission Chairman Gary Gensler has called for investor protection, signaling that there may be more regulation before the agency approves cryptocurrency funds.
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