“It’s been a phenomenon in crypto for several years,” said Stephen McKeon, associate professor of finance at the University of Oregon in Eugene, Ore., And partner of Collab + Currency, an investment fund focused on cryptocurrency.
These weekend declines can have big effects as regulators assess the future of digital currency, experts say. Here’s why these crashes can occur.
Less exchanges on weekends
“When the volume is low, the same transaction size can cause prices to vary a lot more,” he said.
With banks closing this weekend, there are fewer transactions because investors may not be able to add money to their accounts, McKeon said.
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“You have times of panic in the market where there is a lot of selling pressure,” he said.
Typically, there is a rebound on Sunday night as Asian banks open and Monday as U.S. banks follow, McKeon said.
Additionally, there are cryptocurrency influencers like Elon Musk, CEO of Tesla, who “are waving a heavy hand on the crypto space,” said Tyrone Ross, CEO of Onramp Invest in New York.
When Musk tweets something negative about bitcoin after hours, it can trigger a wave of activity.
Trading on margin
When digital currency prices drop below a certain level, traders must repay the loan, known as a “margin call”.
But if investors don’t cover the loan, exchanges can sell the digital currency to make sure it gets the borrowed money back.
“This will further lower the price,” he added.
“There are a lot of studies that show that there are [market] manipulation, ”Shams said.
For example, research from 2019 shows how tether, a digital currency tied to the U.S. dollar, may have artificially inflated the prices of bitcoin and other cryptocurrencies during the 2007 boom.
But researchers still don’t know to what extent this is happening, he said.
Some believe this happens more often during the week, leading to higher prices for digital currencies. But that theory may just be speculation, he said.
Other experts say there are “mixed opinions” on these practices.
“I personally haven’t seen any conclusive evidence to suggest manipulation,” McKeon said.
While ETFs trade during the work week, investors can buy or sell cryptocurrencies 24 hours a day, seven days a week, and can create a lag for crypto ETFs, Shams said.
Securities and Exchange Commission Chairman Gary Gensler called for greater investor protection for cryptocurrency, signaling that additional regulation may be needed before the agency approves crypto ETFs.
The SEC is currently reviewing bitcoin and ethereum ETF applications from several companies.