Why does crypto price swings mostly on weekends? No one would disagree with the fact that cryptocurrencies are extremely volatile by nature but few would agree to the fact that the prices of crypto coins tends to swing mostly on weekends, and in both ways.
This is a phenomenon that has been existing and proven in the crypto space for several years but people seem to disagree with it simply due to the reason that the crypto market never sleeps like a traditional stock market.
Well, this article is mainly for those disbelievers.
Ideally, the ups and downs in the prices of crypto coins during the weekends have significant effects because, as the experts say, it makes it quite difficult for the regulators to determine the future of the coins.
Typically, people wait for Saturday to come to have their much needed break from the workweek but it is this time when the majority of inexperienced crypto buyers and sellers get into action.
This happens to be the most crucial time for them.
However, this is not the only reason for the price swings in the crypto coins during the weekends.
This opportunity may seem to be extremely beneficial to you, which is true no doubt, but along with it comes a lot of challenges that you need to know and overcome as well if you want to make the most out of these opportune moments.
You will need to make timely trades and in order to calculate that you will need to monitor the market and its movements very closely.
This will ensure that you make more profits and cut down the chances of incurring huge losses while trading during the odd hours.
Why Does Crypto Price Swings Mostly on Weekends?
To understand it all, you will need to know a few other things first and then go for the reasons or factors that cause such alterations in the prices of crypto assets during the weekends.
If you do not understand the matter well, you will have to spend sleepless nights frequently and be very busy even on the weekends.
If you are an active crypto trader, you should start by first knowing a few basic points.
Changes in prices of crypto coins typically happen during the weekend due to the lower trading volumes.
There are fewer buyers and sellers and therefore the prices of crypto assets tend to move downwards during the weekend.
There may also be some effects of margin trading as well as other specific factors, which are also good to know, in case you are thinking of making some long-term plans regarding digital currency.
When a user trades crypto on margin they usually buy the assets by borrowing money from the crypto exchanges.
If the prices fall below a specific level, they will have to repay the amount borrowed. This process is called the ‘margin call.’
If they do not pay it back, the crypto exchange may sell the digital assets in order to get their money back.
This is why margin trading is not for inexperienced traders.
Since banks are closed on the weekends, you will not be able to transfer money into your account and may struggle to pay back the funds borrowed from the crypto exchange.
This may trigger sell-offs of crypto coins from exchanges. This eventually results in the change in the prices of the crypto coins.
Finally, market manipulation also plays a significant role in the change in prices of crypto coins during the weekends.
This is because the crypto whales try to influence the prices of the coins artificially.
A lot of studies show that market manipulation is a common practice by the traders during the weekends so that they can take advantage of the swings in prices first thing in the morning on Mondays.
One significant process of manipulating the crypto market is by spoofing. This process involves making fake buy or sell orders.
This creates an artificial sense of demand and supply of coins which influences the eventual price of the crypto coins.
Though most people think that this happens only during the week, such things can surely happen during the weekends, experts say.
Effects of Trading Volume
As said earlier, prices of crypto coins are typically associated with trading volumes.
If the volume is higher, like it is during the week, the prices of crypto coins will be high.
On the other hand, if the trading volume of crypto coins is lower, as it is on the weekends, the prices will be lower.
On weekends, the users who hold a large number of crypto coins, known as crypto whales, are usually active.
Though they make fewer trade orders, the size of each order can be significantly large.
This is because they want to either offload or amass crypto coins in large numbers in order to cash in. This results in price swings.
However, on weekends, there are also a few other systematic factors that come into play which are based on the low trading volumes during these times.
Several crypto exchanges charge a hefty fee for trading on weekends, especially when you do so by using a credit card.
The traders usually have to use their credit cards because, as said earlier, they cannot transfer money into their trading accounts from their linked bank accounts on weekends since the banks are closed.
Those who remember to transfer the money on Friday itself are saved from paying such hefty fees of crypto purchases.
However, there is also an issue here. Since the money lies in their trading accounts and the crypto market offers limited liquidity on weekends, these crypto traders tend to place orders at extremely high prices.
This eventually results in a big move in the prices of the crypto coins on weekends.
Also, the low liquidity factor results in large spreads in the trading prices. This is because on weekends new money does not come in significantly to support the prices.
Typically, the crypto market is relatively thinner during the weekends than it is during the week.
In such a situation, a same trade can move the prices of crypto coins a lot, lot more than it can during the week.
Eventually, such low volume trades on the weekends results in market panic where people feel a lot of selling pressure.
Also, when prominent people like Elon Musk say something negative about Bitcoin after hours, it results in a frenzy among the crypto users which sparks a wave of activities.
However, things rebound on Sunday night when the Asian banks open and on Money when the US banks follow.
Role of Inexperienced Crypto Traders
The inexperienced or novice traders should ideally stay away from making weekend trades because their activities also affect the prices of crypto coins.
However, survey reports reveal that they do not, and, in fact, are engaged much, more than the professional crypto traders are!
Usually, novices engage in crypto trading on the weekends because this is when they have enough time to focus on their trades and study the crypto market.
Well, they may work from home now due to the pandemic situation, but compared with the overall daily trading pattern, this habit still persists in them.
Also, the novices and inexperienced crypto traders do not make their trades based on proper analysis and usually have a lower risk appetite.
It is for that reason they feel that they have a higher chance of making more profits since the trading volume is low on the weekend as compared to the trading volumes within traditional trading hours.
This wild weekend trading fascination of the novices is not only affecting the price of the crypto coins during the weekends but is also offering new challenges for other big and small crypto players.
They now have to staff desks outside the normal office working hours or else they will miss out on the potentially lucrative price moves of the crypt coins during the weekend.
As for the larger and more experienced investors, brokers and traders, they use trading algorithms to buy or sell crypto coins that fluctuate negligibly during the weekends in small chunks.
This is opposed to their trading activities during the week where they buy a specific number of crypto coins at a specific price.
If these trades are too large in amount, then this automatically bleeds into the weekends.
This once again results in outsized swings in crypto prices during weekends when there are fewer coins in the market.
Moreover, the activities of the novice traders on the weekends contribute to the volatility factor of the crypto coins.
As you may know that funds typically hunt volatility, this makes a perfect recipe and sets up the stage for a dramatic swing in the prices of crypto coins.
Add to that, the involvement of more conventional investment managers as well as the entry of hedge funds have seen a rise in algo trading which eventually contributes to the volatile weekends of the crypto coins.
There are lots of reasons that suggest why exactly the prices of crypto coins swing on the weekends. Some of the most significant reasons are:
Staying Ahead of the Rest
Most crypto traders want to stay ahead of the rest and therefore they all end up trading on the weekends, which eventually results in price swings of the crypto assets.
Typically, the news cycle in the crypto space never ends but in most cases it is seen that large corporations wait until Monday to make any important announcements.
They find it most appropriate to report mergers, acquisitions or any other events in the morning of the first day of the week.
The crypto traders know about it and want to be ahead of the news deluge.
That is why they trade over the weekends, though it is a little bit of an anticipatory move because there may or may not be any such announcements made by the crypto companies on Monday next.
However, this is not at all a totally wrong move because developments happen in the crypto scene everyday and therefore one can bet on a Monday announcement.
There may be a few like-minded crypto investors or friends who may have a group discussion on a weekend regarding any news or event and pitch each other on the exciting things that may have happened in the crypto circuit.
Such colloquium may result eventually in trading the underlying token over the weekend.
When such discussions happen on a large scale on crypto and blockchain, it will have a notable effect in driving more excitement and interest among the investors and traders to get active on the weekend.
Due to their intent to make the best out of the latest developments and deals, the prices of the underlying crypto assets rise, or fall.
In spite of the rise in prices of crypto coins on weekends, there may not be many people trading together.
This accounts for more prominent movements in the prices of crypto assets.
And, this price movement is further exacerbated because the banks are closed on weekends.
However, in such situations, it is easier to move the needle during the weekend when everyone else is sleeping!
Traders believe that there will be least resistance to making profit in the path.
This is when and where the professionals spark a move and make profit from it.
Fear of Missing Out
FOMO or Fear of Missing Out by those specific traders who think that Bitcoin has gained an incredible amount during the week also result in weekend price swings, because they jump in blindly driven by the anxiety of losing future profits.
It is all about the opportunistic investors who like to follow the herd blindly.
These acts of FOMO can even push the investors who were shy previously over the edge, and, along with it, it pushes the price of the crypto coins as well.
However, this can also work in the opposite way, especially if the investors wish to buy the coins when the price of it falls.
Commitment of Traders Report
The Commitment of Traders Report published by The Commodity Futures Trading Commission usually on Friday afternoons also causes price swings in the crypto assets.
This report states the latest changes in open interest in futures contracts and options contracts.
Crypto speculators usually follow this report to gain valuable information about the positions of traders in different securities.
For example, information and indicators on short-only positions may show how bearish traders are and then a look at the historical data of the particular security will tell about the bullish/bearish momentum.
All these can be great trading silage for a speculator and they will not be able to make the actual picture out by Saturday morning because the news comes out only on Friday afternoons.
Overcoming the Weekend Effect
Now, if you want to trade safely and make profit, you will need to come out of the weekend effect in crypto trading.
The best way to do this is to find out which are the best days for trading crypto coins.
Yes, there are. This is the same process that traders and investors follow in the case of traditional stock investing.
Typically, in the case of traditional stocks the weekend effect suggests that the returns on stocks on Mondays are often lower as compared to the returns offered on Friday past.
This is because companies typically want to bury any bad news regarding the stocks by releasing them only after the market closes on Friday evenings.
In the case of the crypto market, which never closes, the same principle and day bias is applicable and you can judge the best day to trade crypto easily by yourself by backtesting the week.
You may use the average log returns for the specific coin over a long period of time till present day for that matter.
You will also do good while crypto trading if you consider backtesting not only one particular coin such as Bitcoin because it is most popular but for any coin.
This is very important. It is true that Bitcoin price influences the entire crypto market and can be quite a decent proxy but the weekly pattern of other coins may be significantly different from that of Bitcoin.
The best thing to do is to use a ‘Daily Performance’ template so that you can know about the historical data of returns for any given crypto coin you want to trade with.
Finally, you should consider the trading costs involved because it can be a very significant downside for your active crypto trading strategy if it is very high.
As said earlier, fees charged by the crypto exchanges and trading costs on weekends may be higher which will chip away a significant part of your projected returns.
All these will easily enable you to offset the volatility inherent in the crypto market and also warn you of the odds stacked against you as well as the times when you should not trade irrespective of what the charts state.
Since crypto can be traded 24/7 giving you more flexibility to choose the time, doing so on the weekends may result in huge losses if you do not know about the price swings happening then. Thanks to this article, it is no longer possible.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.