Cryptocurrency is renowned for volatile price movement and collapses have occurred on weekends, according to some analysts.
Stephen McKeon, associate professor of finance at the University of Oregon in Eugene, and partner at Collab+Currency, a cryptocurrency-focused investment firm, explained that this has proven a cryptocurrency phenomenon for some years.
While the future of digital currency regulation is still up in the air, experts warn these weekend drops may have a major impact. According to this, these are the reasons these crashes may be occurring.
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One explanation for weekend bitcoin unpredictability, Amin Shams, an assistant professor of finance at Ohio State University in Columbus, Ohio, explained.
When volume is limited, little price movements can have a large impact.
Traders may not be able to transfer funds to their accounts over the weekends since banks are shut, McKeon added.
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Experts said you have instances of market panic when there is a great deal of selling pressure.
On Sunday night, when Asian finance institutions open, there's usually a recovery, McKeon said. On Monday, when U.S. banks open, the same thing happens.
Added to that, there are bitcoin influencers such as Elon Musk, CEO of Tesla, who "blow a deep influence over the crypto sector," said Tyrone Ross, CEO of Onramp Investments in New York.
An overnight spike in bitcoin prices may result from Musk tweeting anything unpleasant about the cryptocurrency.
A second possible cause of weekend price fluctuations may be traders engaging in virtual currencies, in which they borrow funds from the exchanges in order to purchase additional cryptocurrencies.
A margin call is issued when cryptocurrency values fall below a particular point.
However, if investors fail to repay the debt, cryptocurrency exchanges may sell their digital currency to reimburse themselves.
During the weekend, the banks are closed, so those traders who used borrowed funds will not be able to transfer money into respective accounts, causing sell-offs on exchanges, according to Shams.
He further said, “That will bring the price down much more.
Additionally, it is conceivable that individuals attempting to manipulate bitcoin values via artificial means may be playing a role.
One particular study found a lot of speculative trading, according to Shams.
An advantage: As it turns out, the tether tethering money, linked to the U.S. dollar, was an artificial contributor to the recent spike in cryptocurrency values, which occurred during the first half of 2017.
They still aren't certain just how widespread the phenomenon is, he said.
Cryptocurrency price manipulation is said to be carried out via "spoofing" bogus purchase and sell orders.
On the other hand, others think this effect is more pronounced on weekdays, resulting in rising digital currency prices. He remarked, however, that this idea could be nothing more than conjecture.
Many other specialists believe that these methods are “disputed.”
"Too far, no definitive evidence has emerged to indicate that there has been manipulation," McKeon added.
Despite the cause for weekend price volatility, authorities must consider the authorization of cryptocurrency-based transaction funds, given the underlying issues raised.
For investors, buying and selling bitcoin may be done 24/7, and the ETF will be unable to account for that mismatch, said Shams.
As an example, if the digital currency market falls by 20% on a Sunday, investors who are anxious to unload their cryptocurrency exchange-traded funds (ETFs) would find themselves unable to do so until the markets reopen on Monday.
In an effort to provide better safety for investors, SEC Chair Gary Gensler has advocated for more stringent investor safeguards in cryptocurrencies. This may mean further regulation before the SEC authorizes bitcoin ETFs.
Many businesses are applying for bitcoin and ethereum ETFs from the SEC.
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