Crypto Market Faces Moment of Truth After Chaotic Week

The crypto market seemed to be hanging in the balance this week after a succession of good news that helped push up the value of dogecoin and ethereum. This morning (Friday), bitcoin seemed to be hovering around the $37,000 mark, having risen more than $5,000 since Tuesday.

The broader crypto market has reflected the latest movements of bitcoin, although the recovery of ethereum and dogecoin appear to have stalled. Cryptocurrency analysts have described this week as a “make or break” moment for the market, with the next few days being potentially crucial in determining its longer-term trajectory.

The bounce=back was spurred on by a wave of positive news in the market, as some more interest was sparked from leading banks and hedge funds as well as El Salvador officially declaring bitcoin a legal tender, and revealing plans to mine cryptocurrency using 100 percent renewable geothermal energy from volcanoes.

Crypto unstable on weekends – why?

Cryptocurrency is known for volatility and some experts say crashes tend to happen on weekends.

“This has been a phenomenon in crypto for several years,” said Stephen McKeon, associate professor of finance at the University of Oregon in Eugene, and partner at Collab+Currency, a cryptocurrency-focused investment fund.

These weekend dips may have significant effects as regulators weigh the future of digital currency, experts say. One of the reasons for weekend cryptocurrency volatility is that there are fewer trades, so when the volume is low, the same trade size can move prices a lot more.

With banks closed over weekends, there is less trading because investors may not be able to add money to their accounts. “You get moments of market panic where there’s a lot of selling pressure, and typically, there’s a rebound on Sunday night as Asian banks open and into Monday as U.S. banks follow.” McKeon said.

Plus, there are cryptocurrency influencers like Tesla CEO Elon Musk who “waves a heavy hand over the crypto space,” said Tyrone Ross, CEO of Onramp Invest in New York.
“When Musk tweets something negative about bitcoin after-hours, it may spark a wave of activity.”

Trading on margin

Another reason for weekend price swings, may be that investors are trading cryptocurrency on margin, which means borrowing money from the exchanges in order to buy more assets.

When digital currency prices dip below a certain level, traders must repay the loan, known as a “margin call.” But if investors don’t cover the loan, exchanges may sell the digital currency to ensure they recoup the borrowed money.

This results in some traders who may struggle to pay off the borrowed funds because they can’t move money into their bank accounts, which triggers sell-offs from exchanges. It’s also possible that those trying to artificially influence cryptocurrency prices may be a factor.

“There are a lot of studies that show there is [market] manipulation,” said McKeon. For example, 2019 research shows how tether, a digital currency tied to the U.S. dollar, may have artificially inflated bitcoin and other cryptocurrency prices during the 2017 boom. But researchers still don’t know the extent to which it happens, he said.

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