Experts explained why crypto always crash on weekends. Here’s the reason behind the well-known Sunday sickness. Will this be a serious issue?
Crypto has been making a huge noise in the market, as well as in the internet. However, there’s one issue that could affect it in the future. This problem is called the “Sunday Effect,” which makes it lose its value during weekends.
If you don’t know how crypto works, it is a digital currency that is not aren’t tied to any regulatory authority, and they freely trade outside standard hours for equity exchanges—giving investors the prerogative to buy or sell it whenever they please.
However, some crypto experts and other critics claimed that this method could have a negative effect the digital currencies. They claimed that it could lead to enormous market swings on the weekends or even holidays. In mid-April, 10% of Bitcoin’s value was razed over one weekend.
On the other hand, Bitcoin, one of the most popular crypto types across the globe, has experienced low returns on the weekends this 2021 compared to the ones it experienced intraweek. The average return for Bitcoin this year has been 0.29% on weekdays, compared to 0.17% on weekends, according to data from investment research fintech YCharts.
This just shows that Sundays and Saturdays could have a big impact on how crypto works in the market. To give you more idea, here is the possible reason why it is happening right now.
What is the Reason for Sunday Effect?
According to Carol Alexander, a finance professor who conducts cryptocurrency research at the University of Sussex, the reason behind the crypto Sunday effect is the day offs of traders. Since digital currencies are not regulated by the government, the traders don’t have to work on weekends and can go on a vacation anytime they want.
U.S. asset managers, who she has argued are instrumental in dictating the price of cryptocurrencies, nearly always take Sundays off, even if they occasionally trade on Saturdays. Without their participation in the Bitcoin market on Sundays, prices tend to fall, she says. Alexander said, “just since April—Monday, and Sunday returns [for Bitcoin] have been really, really, really different.”
Because of this, the cryptocurrencies markets have changed dynamically as more institutional players have entered the market since mid-2020, Alexander says. That’s when the Office of the Comptroller of the Currency formally allowed chartered banks and thrifts to provide custody of digital currency assets.
Aside from day-offs, experts also claimed that cryptocurrencies’ values during weekends are also affected by liquidity since most of these digital currencies are dominated by a few enormous players. They added that the liquidity issue can be compounded on weekends when fewer investors are making trades.
Although this is the case, most people still prefer cryptocurrencies to be free from goverment’s management. Why? Because once the U.S. government decided to handle these digital currencies, limitations and other restrictions will certainly arrive.