Bitcoin's Wild Weekends Turn Efficient Market Theory Inside Out

You might have heard something about market liquidity and its gyrations, but that is not the whole story.

It has been one of the best weeks on record in terms of price rally as we see that Bitcoin surging about 40 percent over the seven days through Friday. If someone expecting Bitcoin to halt or hinder due to its volatile nature should fasten his seat belt and be ready to see amazing things taking place.

Particularly on Saturdays and Sundays, when several of the other assets seem to dislodge, it was Bitcoin which keeps on instigating its enthusiasts. Just have a look at the first weekend of 2021. Becoming a piece of hot news with a 300 percent gain last year, the world's largest digital coin rose as much as 14 percent on Jan. 2 and another 10 percent on Jan. 3. This was a time when most of Wall Street was still in holiday mode. These ebb and flows were even bigger than on any weekday in the next two weeks and the biggest intraday moves since the weekend before. Surprisingly enough, it jumped 10 percent on Dec. 26, according to Bloomberg data. is traded all day long every day in the same way as other coins. The thing which makes Bitcoin an outstanding coin is its enormous and abrupt price swings done outside of established business hours.  We find it difficult to find suitable pricing for the dollar, for example, with currency-market participants usually in agreement to take weekends off. But in the case of Bitcoin, we have noticed its average swing on Saturdays and Sundays during the fourth quarter, on the other hand, was 1.5 percent.

Why weekend swings?

This volatility observed especially on weekends in the cryptocurrency market has several elements working in the background. The most important among them is that it's held by relatively few people - about 2 percent of accounts control 95 percent of all available Bitcoin supply. If these whales start trading when volumes are thin, price swings will maximize. Market structure is also responsible for it. We find hundreds of disconnected exchanges that in effect are their islands of liquidity.

Nick Carter, a partner at crypto-focused venture firm Castle Island Ventures explains that People always talk up Bitcoin as 24/7, 365 liquidity. Bitcoin has frequent periods of very thin liquidity. And if anyone wants to invest $500 million in Bitcoin, he should do it during core banking hours.

What is the cryptocurrency Market?

The cryptocurrency market is still undergoing developmental procedures. Bitcoin in its original form was introduced in this market more than 10 years ago. Greg Bunn, chief strategy officer at digital-asset firm CrossTower, says that this market has been in a hugely fragmented shape when we see it from an infrastructure standpoint.

Bunn says that each platform has its different standards and with "different philosophies. Yet it is right to say that this market of cryptocurrency is devoid of a centralized market structure similar to that of traditional assets, where we have common means of custody and settlement, for instance. Also when we talk about a structure with a favorable environment for such volatile coin with big moves, we should think that it would be greatly influenced by traders busy watching markets.

According to Binance.US's Catherine Coley, these wild weekend patterns for Bitcoin are reminding us of her time trading currencies in Hong Kong in the early 2010s.  This volatility sometimes becomes restrained during lunchtime activity and around holidays. She further says that professional traders prefer to be more active from Monday-through-Friday schedules. In this way, we can predict that liquidity with an asset traded would wane on weekends.

Market liquidity factor

The process of liquidation needs a continuous supply of both buyers and sellers - ease in freeing up the value of one asset for another. In case any one of them is present in minority, then the process of transactions gets harder. So this imbalance situation ends up in either a spike or crash in prices. The time when we see Bitcoin's price ripping on low liquidity, you can hope to get the price a little bit cushioned.

We can not tell with certainty about the theories explaining Bitcoin's weekend action abound. According to a cryptocurrency platform, Bitwise Asset Management's Teddy Fusaro the volatility might be due to the possibility that illiquidity providers and market-makers are lightly staffed on weekends. As Fusaro, the company's chief operating officer says that it is a permanent feature of the market and it would be there in the future too.