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Why Do the Cryptocurrency Prices Go Down on the Weekends?

If you have been in the crypto world for a while, you will probably have noticed a typical behaviour of the market during weekends. With some exceptions, we are used to seeing the price of significant cryptocurrencies drop over the weekend.

The phenomenon is known to those who operate in this market, but understanding precisely the causes seems to be rather complex. Therefore, this article will discuss a definitive answer by analyzing the various main factors involved in this market trend.

Do we have a definitive answer?

The short answer is that no, unfortunately, we do not precisely have a definitive answer to why cryptocurrencies tend to see price declines over the weekend. Instead, the current situation appears to depend on at least two factors:

  • It’s a young market: the market youth of cryptocurrencies will have to deal with for several years. While Bitcoin came around more than ten years ago, the current rate of new cryptocurrencies appearing on exchanges is unprecedented. For years, BTC, ETH, and a few other coins quickly dominated the sector. Therefore, investing in this market is not like operating in a mature industry such as Forex.
  • It may be wrong to look for a unique reason: it certainly is tempting to claim that crypto prices fall on weekends because of one specific reason. However, the reality is far more complicated. In the real world, many factors combine to create financial market reactions.

Keeping these premises on our mind, the following sections will discuss several likely reasons behind this interesting phenomenon.

The role of banks

First of all, we should probably talk about the role of banks in this particular market equilibrium. While swap operations are certainly growing in popularity, more and more crypto exchanges allow the use of fiat currencies.

This may be interpreted as a signal that a relevant part of investors still prefers buying cryptocurrencies with fiat money rather than using other coins. 

Considering that fiat money is generally stored on banks, most banking institutions are not operative during the weekend may play a part in this game.

An indirect confirmation of this theory appears to come from the typical rebound of crypto prices on Sunday nights (U.S. time) when Asian banks open.

Margin trading

Those traders who use a margin to operate on financial markets may also have a substantial weight in the strange behaviour of cryptocurrencies during the weekend. If you are not familiar with margin trading, here is what usually happens when your investments’ value decreases under this speculative technique:

  • suppose there is an event leading to a decrease in the price of cryptocurrencies (say, the fact that banks are closed on the weekend, as previously mentioned)
  • you have a margin long position, which suddenly needs to be covered to avoid being automatically closed at a loss
  • the market calls this operation a margin call, and, to prevent it, investors may decide to be bearish on a token, covering their loss
  • crypto prices will move even lower, starting the loop from the beginning

This system can only be broken when the market becomes bullish again on a coin. And, once again, this cycle appears to break exactly when Asian banks open on Monday morning.

Is there room for market manipulation?

In a poorly regulated market, price manipulation is a real issue. So yes, this may (and, probably, does) happen. From time to time, the market is hit by reports aiming to prove how few whale investors artificially move the crypto market.

Therefore, we cannot exclude a similar (and even recurrent) manipulation during the weekend. For example, suppose anyone decides to target a particular cryptocurrency with selling orders, pushing its market quote down. 

Anyone who can control the machine can easily make the right call when the prices lower, opening long positions with high and easy profits.

This is yet another hint that a little more regulation would not hurt the crypto market, and many retail investors could fall victim to such a scheme.

Investment funds

Exchanged Traded Funds (or ETFs) may also play a relevant part in the declining crypto prices we observe on the weekend. ETFs generally have lower or no trading activity during the weekend, a factor that may dramatically push investment volumes from Friday to Sunday night.

As previously mentioned, lower volumes lead to a higher market-moving power for each trade, resulting in increased price volatility.

This is a hazardous aspect since many ETF investors may find themselves forced to record significant losses when investment firms reopen on Monday morning.

A psychological factor

We should not forget about one of the hardest (and significant) factors to measure: market psychology. A popular financial theory claims that if investors think something will happen on the market, they will eventually be right.

These “self-fulfilling prophecies”, as academics call them, may be another massive force playing on the crypto market during the weekend:

  • assume everyone thinks, by looking at the past, the crypto prices will go down on Sunday morning
  • consequently, investors will bet on the collapse of the market
  • while doing so, they will sell coins at a high rate, actually leading to the need to move lower
  • at this point, other factors such as margin call direct to the previously described loop.

What can we conclude on the matter?

Anyone claiming that there is only one reason why crypto prices collapse during the weekend risks oversimplifying reality. Just like many other things in the real world, financial market processes are not as easy as they may appear in the eyes of an inexperienced trader in need of crypto guides.

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We know for sure that cryptocurrency trading volumes and prices tend to decline over the weekend. While the potential explanations we included in our analysis are far from being definitive, they may provide some food for thought on the matter.

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