key point
1.Investors may trade cryptocurrency outside of the work week, allowing for after-hours price swings.
2.Fluctuations happen on weekends due to less volume, margin trading and other factors, experts say.
3.Weekend drops may have significant effects as regulators weigh long-term plans for digital currency.
Cryptocurrency is known for volatility and some experts say crashes tend to happen on weekends.
These weekend dips may have significant effects as regulators weigh the future of digital currency, experts say. Here's why these crashes may be happening.
Less trading on weekends
One of the reasons for weekend cryptocurrency volatility is there are fewer trades, said Amin Shams, assistant professor of finance at Ohio State University in Columbus, Ohio.
"When the volume is low, the same trade size can move prices a lot more," he said.With banks closed over the weekend, there is less trading because investors may not be able to add money to their accounts, McKeon said.
That's going to drop the price further," he added.
Market manipulation
It's also possible those trying to artificially influence cryptocurrency prices may be a factor.
"There are a lot of studies that show there is [market] manipulation," said Shams.
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
One theory points to so-called spoofing, involving fake buy or sell orders to influence cryptocurrency prices by creating a false sense of supply and demand.
Some believe this happens more often during the week, causing digital currency prices to rise. But this theory may only be speculation, he said.
Other experts say there are "mixed views" on these practices.
"I have not personally seen any conclusive evidence that suggests manipulation," McKeon said.
Crypto ETFs
Regardless of the reason for weekend volatility, it presents challenges for regulators weighing the approval of cryptocurrency-based exchange-traded funds.
While ETFs trade during the work week, investors can buy or sell cryptocurrency 24 hours per day, seven days per week, and may create a mismatch for crypto ETFs, Shams said. For example, if the digital currency market drops by 20% on a Sunday, those eager to sell may be stuck with their crypto ETFs until the markets open again on Monday.
Securities and Exchange Commission Chair Gary Gensler has called for greater investor protections for cryptocurrency, signaling more regulation may be necessary before the agency approves crypto ETFs.
The SEC is currently reviewing bitcoin and ethereum ETF applications from several companies.