Itâ€™s on Saturdays and Sundays, when most other assets barely budge, that Bitcoin tends to go particularly nuts. Take the first weekend of 2021. Coming off a 300% gain last year, the worldâ€™s largest digital coin rose as much as 14% Jan. 2 and another 10% Jan. 3, a period when most of Wall Street was still in holiday mode. The swings were bigger than on any weekday in the prior two weeks and the biggest intraday moves since the weekend before, when it jumped 10% on Dec. 26, according to Bloomberg data.
Bitcoinâ€™s not alone in trading all day, every day. What sets the coin apart is how big its price swings are outside of established business hours. Itâ€™s tough to find pricing for the dollar, for example, with currency-market participants usually in agreement to take weekends off. Bitcoinâ€™s average swing on Saturdays and Sundays during the fourth quarter, on the other hand, was 1.5%.
The cryptocurrencyâ€™s weekend volatility spikes owe to a couple of factors. One is that itâ€™s held by relatively few people — about 2% of accounts control 95% of all available Bitcoin supply. If these whales trade when volumes are thin, price swings will be magnified. Another is its market structure, which consists of hundreds of disconnected exchanges that in effect are their own islands of liquidity.
â€œPeople always tout Bitcoin as 24/7, 365 liquidity, but what that actually means is you have periods of very thin liquidity,” said Nic Carter, a partner at crypto-focused venture firm Castle Island Ventures. â€œIf you want to deploy $500 million of Bitcoin, you probably want to do it during core banking hours.”
The crypto market is relatively nascent. Bitcoin, the original crypto, brought forth the movement a little more than 10 years ago. According to Greg Bunn, chief strategy officer at digital-asset firm CrossTower, the market remains hugely fragmented from an infrastructure standpoint.
Many platforms operate under different standards and with â€œdifferent philosophies,” said Bunn, who spent decades with firms including Citadel and Deutsche Bank. Yet it lacks a centralized market structure akin to that of traditional assets, which tend to have common means of custody and settlement, for instance.
â€œIf you think about the structure, that makes it conducive to things that are going to be very volatile and where youâ€™re going to have big moves,” he said. â€œThatâ€™s obviously going to be impacted by when people are trading, when people are awake, when people are watching the markets.”
To Binance.USâ€™s Catherine Coley, Bitcoinâ€™s wild weekend patterns are reminiscent of her time trading currencies in Hong Kong in the early 2010s. Volatility sometimes became subdued during lunchtime lulls and around holidays. Professional traders, she says, tend to keep Monday-through-Friday schedules, so it makes sense that liquidity — or how easily an asset can be traded — would wane on weekends.
Whatâ€™s seen as liquidity requires a steady supply of both buyers and sellers — an ease in freeing up the value of one asset for another. If there are fewer buyers than sellers — or vice versa — then that makes transactions harder, a situation that usually leads to either a spike or crash in prices. Last weekend, Bitcoinâ€™s price was â€œabsolutely ripping on low liquidity,” said Coley, who is Binance.USâ€™s chief executive officer. â€œIn these periods of illiquid times, youâ€™re going to be getting pricing that is a little bit cushioned.”
That could mean someone with a large sell order canâ€™t as easily unload a position over weekend trading. â€œTo some extent, itâ€™s going to be more difficult for them to offload the risk that theyâ€™ve got,” she said. â€œSo thatâ€™s where you see these weekend moves of dramatic price spiking.”
No one knows for sure and theories explaining Bitcoinâ€™s weekend action abound. Bitwise Asset Managementâ€™s Teddy Fusaro says itâ€™s also possible liquidity providers and market-makers are lightly staffed on weekends, which can lead to volatility.
â€œItâ€™s a feature of the market that has always been there and we expect that it will be a feature of the market that remains into the future,” Fusaro, the companyâ€™s chief operating officer, said. â€œEfficient market hypothesis people would assume that the market should price in the idea that there could be less liquidity on the weekends.”
Mati Greenspan, founder of Quantum Economics, says that while institutional players have been in the spotlight recently, retail investors could be re-entering the space again, as well. They played a big role in Bitcoinâ€™s notorious 2017 run-up — and many got burned when it crashed the following year.
Bitcoin trading volume has increased, hitting a record recently, with about $80 billion changing hands on a weekly basis, according to data from researcher Messari.
â€œWeâ€™re breaking through barriers at breakneck speeds,” said Greenspan. â€œThis entire move from $10,000 to $40,000, this is mind-blowing and Iâ€™m saying this as someone who witnessed 2013 and 2017 — itâ€™s just much bigger.”
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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