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Here’s why cryptocurrency crashes on weekends
One of the reasons for weekend cryptocurrency volatility is there are fewer trades, said Amin Shams, assistant professor of finance at Ohio State University in Columbus, Ohio.To get more news about Hot Inflation, you can visit wikifx.com official website.
“When the volume is low, the same trade size can move prices a lot 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.
“You get moments of market panic where theres a lot of selling pressure,” he said.
Typically, theres a rebound on Sunday night as Asian banks open and into Monday as U.S. banks follow, McKeon said.
Plus, there are cryptocurrency influencers like Tesla CEO Elon Musk who “wave a heavy hand over the crypto space,” said Tyrone Ross, CEO of Onramp Invest in New York.
When Musk tweets something negative about bitcoin after-hours, it may spark a wave of activity.
Trading on margin
Another reason for weekend price swings may be investors trading cryptocurrency on margin, which is borrowing money from the exchanges to buy more assets, Shams said.
When digital currency prices dip below a certain level, traders must repay the loan, known as a “margin call.”
But if investors dont cover the loan, exchanges may sell the digital currency to ensure they receive the borrowed money back.
With banks closed over the weekend, some traders may struggle to pay off the borrowed funds because they cant move money into their accounts, triggering sell-offs from exchanges, Shams said.
“Thats going to drop the price further,” he added.
Its also possible those trying to artificially influence cryptocurrency prices may be a factor.
“There are a lot of studies that show there is [market] manipulation,” said Shams.
For example, 2019 research shows how tether, a digital currency tied to the U.S. dollar, may have artificially inflated bitcoin and other cryptocurrency prices during the 2017 boom.
But researchers still dont know the extent to which it happens, he said.
Some believe this happens more often during the week, causing digital currency prices to rise. But this theory may only be speculation, he said.
Other experts say there are “mixed views” on these practices.
“I have not personally seen any conclusive evidence that suggests manipulation,” McKeon said.