Bitcoin has just positioned itself in one of its best recorded weeks, rising by around 40% over the seven days to Friday. Anyone who expects the notoriously volatile digital currency to take a breather this weekend should be better off.
On Saturdays and Sundays, when most other assets are barely moving, Bitcoin tends to go particularly crazy. Take the first weekend of 2021. Leaving at With a 300% gain last year, the world’s largest digital currency rose to 14% on January 2 and another 10% on January 3, in period when most Wall Street was still in vacation mode. The changes were bigger than on any day of the week during the previous two weeks and the biggest intraday moves since the previous weekend, when it jumped 10% on December 26, according to Bloomberg data.
Bitcoin is not just trading every day. What differentiates the currency is the size of price changes outside of established business hours. It’s hard to find prices for the dollar, for example, with forex market participants who usually agree to take off on the weekends. The average swing of Bitcoin on Saturdays and Sundays during the fourth quarter, on the other hand, was 1.5%.
The volatility rises of cryptocurrency weekends are due to a couple of factors. One is that relatively few people have it: approximately 2% of accounts control 95% of all available Bitcoin supply. If these whales exchange when volumes are thin, price changes will increase. Another is its market structure, which consists of hundreds of disconnected exchanges that are actually their own islands of liquidity.
“People always want Bitcoin as 24/7, 365 liquidity, but what that really means is that you have very fine liquidity periods,” said Nic Carter, a partner at cryptocurrency-focused venture firm Castle Island Ventures. “If you want to deploy $ 500 million in Bitcoin, you probably want to do it during basic banking hours.”
The cryptographic market is relatively nascent. Bitcoin, the original cryptocurrency, produced the move a little over ten years ago. According to Greg Bunn, strategy director at digital asset firm CrossTower, the market remains hugely fragmented from an infrastructure standpoint.
Many platforms operate under different standards and with “different philosophies,” said Bunn, who spent decades with companies like Citadel and Deutsche Bank. However, it does not have a centralized market structure similar to that of traditional assets, which tend to have common means of custody and liquidation, for example.
“If you think about the structure, that makes it conducive to things that will be very volatile and where big moves will be made,” he said. “Obviously, this will be affected by when people are doing business, when people are awake, when people are looking at the markets.”
For Catherine Coley of Binance.US, the wild patterns of Bitcoin are reminiscent he spent his time trading currencies in Hong Kong in the early 2010s. Volatility was sometimes reduced during the midday calms and during the holidays. According to her, professional traders tend to keep their schedules from Monday to Friday, so it makes sense for liquidity (or the ease with which an asset can be traded) to decrease on weekends.
What it looks like liquidity requires a constant supply from both buyers and sellers, a facility to release the value of one asset for another. If there are fewer buyers than sellers (or vice versa), this makes transactions more difficult, a situation that often leads to a rise or fall in prices. Last weekend, the price of Bitcoin “absolutely ripped off low liquidity,” said Coley, who is the CEO of Binance.US. “In these illiquid periods of time, you’ll get some slightly amortized prices.”
This could mean that someone with a large sales order can’t unload a position so easily during weekend trades. “To some extent, it will be harder for them to unload the risk they have,” he said. “So this is where you see these weekend moves of drastic price increases.”
No one knows for sure and the theories that explain Bitcoin’s weekend action are plentiful. Teddy Fusaro of Bitwise Asset Management says liquidity providers and market makers may also have a slight workforce on weekends, which can lead to volatility.
“It’s a market feature that has always been there and we hope it will be a market feature that will be maintained in the future,” said Fusaro, the company’s chief operating officer. “People with efficient market assumptions would assume that the market should trade on the idea that there would be less liquidity on the weekends.”
Mati Greenspan, founder of Quantum Economics, says that while institutional actors have recently been protagonists, retail investors could also re-enter the space. They played a major role in the notorious Bitcoin preparation of 2017, and many were burned when it crashed the following year.
The trading volume of Bitcoin has increased, reaching a record recently, with about $ 80 billion changing hands weekly, according to data from researcher Messari.
“We’re breaking down barriers at breakneck speeds,” Greenspan said. “All this go from $ 10,000 to $ 40,000, that’s amazing and I say it like someone who witnessed it in 2013 and 2017: it’s much bigger ”.
– With the assistance of Kenneth Sexton and Lu Wang