Home https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Business https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Here’s why the cryptocurrency is going down this weekend

Here’s why the cryptocurrency is going down this weekend



Jack Taylor | Getty Images News | Getty Images

Cryptocurrency is known for volatility and some experts say crashes tend to happen over the weekend.

“This has been a phenomenon in crypto for several years,” said Stephen McKeon, associate professor of finance at the University of Oregon in Eugene, Oregon, and partner in Collab + Currency, a cryptocurrency-focused investment fund.

These weekend dips could have significant effects as regulators weigh the future of digital currency, experts say. Here̵

7;s why these crashes can occur.

Less trading on weekends

One of the reasons for cryptocurrency volatility over the weekend is that there are fewer trades, said Amin Shams, assistant professor of finance at Ohio State University in Columbus, Ohio.

“When volume is low, the same trade size can move prices much more,” he said.

With banks closed over the weekend, there is less trading because investors may not be able to add money to their accounts, McKeon said.

More from Personal Finance:
Advisors feel drawn to the cryptocurrency wave when clients express interest
His book looks at the history of money and explains cryptocurrency obsession
Divorce spouses use cryptocurrency to hide money. How experts find it

“You get moments of market panic where there is a lot of sales pressure,” he said.

There is typically a rebound on Sunday night when Asian banks open and until Monday when US banks follow, McKeon said.

Additionally, there are cryptocurrency influencers like Tesla CEO Elon Musk who are “waving a heavy hand across the cryptocurrency 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 the margin

Another reason for price fluctuations over the weekend could be investors trading cryptocurrency on the margin, borrowing money from stock exchanges to buy more assets, Shams said.

When digital currency prices fall below a certain level, traders have to repay the loan, known as a “margin call”.

However, if investors do not cover the loan, stock exchanges can sell the digital currency to ensure that it receives the borrowed money back.

With banks closed over the weekend, some traders may struggle to pay off the borrowed funds because they cannot move money into their accounts, triggering sales from stock exchanges, Shams said.

“It will lower the price further,” he added.

Market manipulation

It is also possible that those who try to artificially influence cryptocurrency prices may be a factor.

“There are many studies that show that there are [market] manipulation, “said Shams.

For example, 2019 research shows how tether, a digital currency pegged to the U.S. dollar, may have artificially inflated bitcoin and other cryptocurrency prices during the 2007 boom.

But researchers still do not know to what extent this is happening, he said.

I have not personally seen any conclusive evidence suggesting manipulation.

Stephen McKeon

Associate Professor of Economics at the University of Oregon

One theory points to so-called “spoofing”, which involves false buy or sell orders in order to influence cryptocurrency prices by creating a false sense of supply and demand.

Some believe this happens more often during the week, causing digital currency prices to rise. But this theory may be just speculation, he said.

Other experts say there are “mixed views” on this practice.

“I have not personally seen any conclusive evidence to suggest manipulation,” McKeon said.

Crypto ETFs

Whatever the reason for the weekend’s volatility, it poses challenges for regulators weighing the approval of cryptocurrency-based exchange-traded funds.

While ETFs trade during the work week, investors can buy or sell cryptocurrency 24 hours a day, seven days a week, and can create a mismatch for crypto-ETFs, Shams said.

For example, if the digital currency market falls by 20% on a Sunday, those eager to sell may be stuck with their crypto-ETFs until the markets reopen on Monday.

Securities and Exchange Commission Chairman Gary Gensler has called for greater investor protection for cryptocurrency, signaling more regulation may be needed before the agency approves crypto-ETFs.

The SEC is currently reviewing bitcoin and ether ETF applications from several companies.


Source link