Bitcoin investors, particularly those wary of weekend volatility, might have a new concern. According to a recent report by Kaiko Research, the launch of spot Bitcoin exchange-traded funds (ETFs) in the United States may have unintentionally exposed the cryptocurrency to wilder price swings during weekends.
Weekend Liquidity Drain And Potential for Price Shocks
Kaiko’s crypto analysts point towards a shift in Bitcoin’s liquidity since the introduction of spot ETFs. Trading activity seems to be concentrated more heavily on weekdays, especially in Bitcoin-US dollar (BTC/USD) markets. While this aligns with traditional market hours, it creates a potential vulnerability during weekends.
The report highlights a decrease in weekend trading volume – a trend previously observed by Kaiko – and attributes it to the rise of institutional and ETF activity. However, this shift, according to Kaiko, “heightens the risk of sharp weekend price swings during market stress.”
The recent Bitcoin sell-off on August 5th serves as a case study. The price dipped below $50,000, and Kaiko observed “liquidity fragmentation” across crypto markets. This resulted in price discrepancies, particularly impacting smaller exchanges with lower trading volumes.
The report details a concerning similarity – Bitcoin’s price movement between the US market close on August 2nd and its reopening on August 5th mirrored significant sell-offs observed since 2020. The price jumped 14% during this weekend period, highlighting the vulnerability to weekend swings.
Weekend vs. Traditional Market Dynamics
Kaiko emphasizes a key difference between crypto and traditional markets. Unlike stocks that have designated closing hours, crypto markets operate 24/7. This means a sell-off starting on a Friday can fester throughout the weekend, amplifying price impacts due to the lack of active trading.
Price Slippage During Weekend Sell-Off
The report doesn’t shy away from the potential impact on individual investors. Kaiko estimates that a $100,000 Bitcoin sell order during the August 5th sell-off could have incurred significant “price slippage” depending on the exchange and trading pair used.
Several exchanges witnessed slippage exceeding 4% for Bitcoin paired with US dollar stablecoins. Notably, Zaif’s Bitcoin/yen pair saw slippage as high as 5.53%, while KuCoin’s BTC/euro pair reached nearly 5.5%.
Also Read: Goldman Sachs Bets Big on Bitcoin: $418 Million ETF Stake Signals Institutional Adoption
The report acknowledges the significant influence of spot Bitcoin ETFs. With 11 ETFs launched in the US alone, these instruments have attracted a staggering $17.3 billion in net inflows since January. This translates to roughly 4.7% of Bitcoin‘s total supply, granting them a considerable hold over the cryptocurrency’s liquidity.
The findings by Kaiko Research suggest a potential shift in Bitcoin’s price dynamics. While the influx of institutional investors through spot ETFs has brought stability in some ways, it might have also introduced a new layer of weekend volatility. Investors, both seasoned and new, may need to factor in this weekend vulnerability when making their Bitcoin investment decisions.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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