On crypto weekends, all cryptocurrencies experience a significant drop. While the cycle continues to happen always, there is an explanation that experts want to share with the traders. The volatility of digital money has something to do with some factors.
Crypto Weekend Crash is Caused By Three Underlying Factors
From CNBC's report on Thursday, June 10, Stephen Mckeon who works as a Collab+Currency partner, and a finance expert said that the event has been persisting for "several years." As a matter of fact, the regulators have something to do with the ongoing changes in the trend of the digital currency's value.
Weekend Yields Less Trading Opportunities
According to the Ohio State University assistant professor of finance, Amin Shams, one factor why the "weekend cryptocurrency volatility" takes place is because of the lesser trades conducted during the time.
Shams continued that a similar trade size could affect the movement of the prices in the case of the low trade volume.
Going back to Mckeon, less trading is widespread since many banks are shut down during the weekend. As a result, the investors could not place any money in the system. He said that selling pressure is felt when users experience a sense of market panic.
Furthermore, Mckeon observed the fluctuations during Monday among US banks and Sunday among Asian banks. In addition, prominent crypto figures including Tesla CEO Elon Musk have had an impact on the rise and decline of the crypto value, as per Onramp Invest CEO Tyrone Ross.
For instance, a simple weekend tweet from Musk could dictate the price of $BTC as it heads to next week.
Crypto Trading on Margin
The second reason why sudden changes in crypto prices occur is because of cryptocurrency margin trading. This means that the investors borrow money for the acquisition of the assets.
There is also a time when the loan repayment is settled by the traders in the case of crypto drops. This is called the "margin call." However, the selling of digital currencies is possible if the investors are not able to pay the loan.
Shams said that during the weekend, there is a difficulty to cover the borrowed funds. In return, several sell-offs emerge due to the inability to transfer money to their accounts.
The last factor affecting the cryptocurrency weekend crash is the manipulation of digital money. According to Shams, some studies prove that market manipulation exists.
In 2019, research showed that US-dollar linked currency, tether, has paved the way to the "artificial inflation" of bitcoin and other cryptos in the market at the time of the 2017 event. As for experts, they have not yet unveiled what's really the reason behind it.
Crypto Updates as of June 10
Zeebiz reported that Ethereum, Bitcoin, Tether, Polka Dot, and Matice saw a huge surge in prices this week. Dogecoin's price also increased by 3.58% during the unexpected increase. However, $SHIB, another meme coin, has dropped by 0.19%.
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Written by Josep Henry