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Why weekends are the Wild West for Bitcoin?
THINKING of jumping into Bitcoin? If this week's boom and bust trading didn't scare you away, you might want to do so on a Saturday or Sunday.
Bitcoin, which trades 24/7, tends to spike on weekends. In fact, surges in weekend activity since the beginning of May account for about 40 per cent of Bitcoin's price gains this year, according to data compiled by Bloomberg. Need more proof? Bitcoin peaked at US$19,666 on a Saturday in December 2017, according to data from Bitstamp, a cryptocurrency exchange.
Unlike securities on most traditional exchanges, cryptocurrencies trade around the clock across the globe. That's because digital assets run on decentralised networks powered by blockchain technology that record all of the transactions, allowing crypto investors to send digital tokens anywhere, any time.
"It's absolutely unique," said David Tawil, president of crypto hedge fund ProChain Capital.
As with all things crypto, theories abound as to why prices tend to spike on weekends. Here are some of the potential reasons:
The news cycle, like crypto trading, never ends. But many large corporations may wait until Monday morning to make significant announcements. Merger Monday, for instance, has been well documented, with companies choosing the morning of the first day of the week to report acquisitions.
Crypto companies, too, choose Mondays for announcements and a lot of traders could be trying to get ahead of the news deluge by trading over the weekend, said Mr Tawil.
"It's a little bit of anticipatory or front-running the news cycle by trading up on the weekend," he said. "You're somewhat flying blind in the sense that you don't know if there will really be an announcement made on Monday morning but in a packed news cycle like crypto, where there's developments really every day, I don't think it's wrong to bet that Monday morning would have a positive development."
Alternatively, crypto investors might spend Saturday or Sunday discussing any news items with friends or other investors, moving them to trade the underlying tokens.
"The market is, by and large, retail individuals and I think that weekends are a time when those people have more free time to read the week's news, to chat with friends, to pitch friends on exciting things they heard about during the week," said Hunter Horsley, chief executive officer of Bitwise Asset Management.
In 2017, when the price of Bitcoin was ballooning, Thanksgiving dinners across America famously featured crypto talk, with many enthusiasts taking on the task of explaining the merits to their closest friends and family.
And huge crypto and blockchain conferences have a similar effect in driving up excitement, said Mr Horsley. Bitcoin surged during New York's Blockchain Week this May, when thousands gathered to celebrate the latest deals and developments.
But even as prices spike on weekends, fewer people may be trading altogether, accounting for more pronounced price moves, according to Montreal-based Jonathan Zeppettini, international operations lead at Decred, a digital currency.
"The fact that these markets are operating when the banks are closed leads to price movements being exacerbated," said Mr Zeppettini by email. "It also takes a lot less to move the needle when everyone's sleeping or it's the weekend." That rang true to Bloomberg Intelligence analyst Mike McGlone. "It is more Asia and those more sophisticated traders picking time and paths of least resistance to profit," said Mr McGlone. "I fully expect the leveraged money professional-types are utilising all tools to spark moves and profit from."
Then there's those who see Bitcoin gain a tremendous amount during the week and, driven by anxiety of forgoing future gains, jump in. That fear of missing out, or FOMO, can push previously-shy investors over the edge. Take the weekend of June 22 - Bitcoin gained close to 19 per cent through the Friday of that week and then an additional 10 per cent over the weekend, according to Bitstamp data.
"It is mainly driven by opportunistic investors," said Naeem Aslam, chief market analyst at Think Markets UK in London. Those are "people who are following the herd and have huge FOMO." But it can work the opposite way, as well, for investors who are looking to buy when prices drop. "Given the past few weekends, I am certain that many have been waiting to buy Bitcoin at a discount price," said Mr Aslam, adding that a price dip could be seen as an opportunity.
The Commodity Futures Trading Commission publishes its Commitment of Traders Report late Friday, outlining latest open interest changes in futures and options contracts. Speculators can glean valuable information from the report, including the latest as to how traders are positioned in different securities. Indicators such as short-only positions provide details on how bearish traders may be on a particular security, while a look at historical data can provide an insight into bearish/bullish momentum - and that information can provide great trading fodder.
"It would get digested as quickly as people can get to it and since it does come out on Friday afternoons, people may not be able to digest it until Saturday morning," said ProChain's Mr Tawil. BLOOMBERG