Bitcoin: Biggest Price Swings Happen on Weekends

Saturday night is eagerly awaited by many as a much-needed break from the workweek, but it is apparently emerging as the most crucial time for bitcoin traders to buy and sell the most popular cryptocurrency.

Cryptocurrency trading continues non-stop on a 24/7 basis across the various exchanges spread all over the planet. While many see this as an advantage with the potential benefits of making profits at the convenience of the active traders, it also comes with the challenges of constantly monitoring prices and making timely trades to book profits and cut losses during the odd-hours. It is essentially turning out to be a case of frequent sleepless nights and busy weekends for the active crypto traders. (See also: Bitcoin Price Swings Resemble Dotcom Crash: Morgan Stanley.)

Bitcoins Swings Wildly During Weekend

A study of bitcoin's  historical price data reveals that some of the biggest price changes occurred over the weekend, according to a CNBC report citing data from CoinMarketCap.com. Consider the following:

• The virtual currency peaked to its all-time high of around $19,600 on a Saturday in December 2017.
• It scaled down to a recent low of $6,648 over the weekend of June 9.
• Around 82% of the weekends have seen a minimum of 3% move in either direction in bitcoin prices.
• Around 60% of the weekends have had a 5% or higher price move over a weekend since December of last year.

Image Courtesy: CNBC/ Datawrapper

Mark Newton, a former Morgan Stanley technical strategist and the president and founder of Newton Advisors, which provides cryptocurrency technical analysis to hedge funds and other firms, confirms the observation: "We're seeing above-average volatility on weekends with it moving dramatically up or down."

The most recent instance when bitcoin prices tumbled to a two-month low of $6,647.33 during the weekend of June 9 was attributed to the news of hacking of the South Korean cryptocurrency exchange CoinRail, and a report in The Wall Street Journal that mentioned a probe being conducted by U.S. regulators over possible price manipulations in cryptocurrency trading. However, those two new items were only the initial triggers for the fall, and the real decline unfolded during the weekend. (See also: What Caused the Crash In Bitcoin's Price Last Weekend?)

Price Moves Accompanied by Low Volumes

Though the price changes are big in size, volume is lower on weekends. The size of individual orders is usually big with overall fewer orders. It indicates that the large holders of the cryptocurrency, so-called bitcoin whales, are active during the weekend to amass or offload bitcoins in big number and cash in the weekend price swings. Activities of such large holders have a big impact on the price moves of the cryptocurrency, and they can be much more influential during weekends when trading volumes remain thin.

In addition to the activities of these large volume participants, there are other systematic factors at play.

A primary reason for the observed trends is attributed to the mismatch in the standard operating hours of banks and the cryptocurrency markets. While banks typically operate 40 hours each week (Monday to Friday), cryptocurrency trading continues on 24/7 basis. Many exchanges and brokers charge a hefty fee for buying virtual currency tokens through credit cards, and therefore individuals and firms prefer bank transfer (ACH) deposits or wire transfers to save on card charges. As many active market participants and firms wish to purchase (or offload) bitcoins over the weekend, they transfer the cash from their linked bank accounts to crypto trading accounts on a Friday. With cash lying in the trading accounts and limited market liquidity, these participants attempt to place trades at extreme prices, which also contributes to big price moves. Low liquidity at any given point in any trading instrument often leads to wide spreads in the trading prices.

Brian Kelly, founder and CEO of digital investment firm BKCM, told CNBC: "Over the weekend, there's not much new money coming in to support prices. It's a relatively thin market and news is exacerbated over the weekend when it's even thinner."

The Bottom Line

While 24/7 trading comes with its benefits allowing a trader the flexibility to trade anytime, odd-hours activities may cause big losses. Along with the known issues of unregulated trading with no upper or lower circuit breakers on price levels and no fundamental mechanism for cryptocurrency valuations, the traders now have another factor to be wary of: the weekend effect.