Due to the high volatility of cryptocurrencies, it is often difficult to find patterns that tend to repeat themselves constantly. However, the drops tend to occur on weekends, in a phenomenon that has been going on for several years and that we are going to try to understand in depth.
Finding a simple answer to the reason why cryptocurrencies like Bitcoin drop in price on weekends is difficult, but it is possible to analyze some causes that together cause these price drops.
Closure of banks
While swap trading is certainly growing in popularity, more and more crypto exchanges allow the use of fiat currencies.
Need for fiat money
With banks closed over the weekend, there are fewer transactions because investors may not be able to add money to their accounts. There are moments of panic in the market where there is a lot of selling pressure .
There is usually a rally on Sunday night when Asian banks open and on Monday when US banks do the same.
invest on margin
Those traders who use margin (borrowing money from exchanges to buy more assets) to trade the financial markets may also have a substantial bearing on the strange behavior of cryptocurrencies over the weekend.
Invest with margin calls
If there is an event that leads to a decline in the price of cryptocurrencies, and you have a long margin position, which suddenly needs to be hedged to prevent it from being automatically closed at a loss, the market calls this trade a margin call and, To avoid this, investors can decide to be bearish on a token, covering their loss.
If the investors do not cover the loan, the exchange houses can sell the digital currency to ensure that they receive the return of the borrowed money. Cryptocurrency prices will move even lower, starting the cycle from the beginning.
This system can only be broken when the market is bullish on a currency again. And, once again, this cycle seems to break exactly when Asian banks open on Monday morning .
market manipulation
In a poorly regulated market, price manipulation is a real problem. From time to time, the market is hit by reports that aim to demonstrate how a few whale investors artificially move the crypto market.
Cryptocurrency price manipulations
One theory points to alleged phishing, which involves fake buy or sell orders to influence cryptocurrency prices by creating a false sense of supply and demand .
Some believe that this happens more frequently during the week, causing the prices of digital currencies to rise.
investment funds
Exchange-traded funds (or ETFs ) may also play a significant role in the crypto price decline we see over the weekend. As they do not usually have minor or no activity during the weekend, a factor that can drastically change trading volumes from Friday to Sunday night.
Investment in cryptocurrencies
Lower volumes lead to higher market moving power for each trade, resulting in higher price volatility.
The psychological factor
We must not forget one of the most difficult (and significant) factors to measure: market psychology . A popular financial theory states that if investors believe something will happen in the market, they will eventually be right.
market psychology
If everyone thinks that by looking at the past , the prices of cryptocurrencies will go down on Sunday morning, consequently investors will bet on the collapse of the market, so they will sell cryptocurrencies at a high rate, which actually leads to the need to move lower.
