The weekend is typically a time for traders to take a breather and get their minds off the market for a couple of days. But while that approach may work for stocks, bitcoin traders that take the weekend off have historically missed some of the biggest moves in the market.
Since the beginning of May, there have been three weekends during which bitcoin made extreme moves higher: the weekend of May 11, when bitcoin jumped 10.9%; Memorial Day Weekend, when it surged 7.5%; and last weekend, when it jumped another 10% to above $11,000.
Volatility in bitcoin over the weekend is certainly no new occurrence. From December 2017 to July 2018, bitcoin prices logged at least a 5% move over the weekend 60% of the time and at least a 3% move 82% of the time, according to CoinMarketCap.
There are multiple theories as to why bitcoin has such extreme weekend moves, but big swings in prices are almost always driven to some extent by lack of liquidity. Lack of liquidity in the cryptocurrency market has consistently been one of the primary concerns of the SEC in rejecting bitcoin ETFs. Low liquidity is also one of the primary reasons market manipulators have targeted the cryptocurrency market repeatedly.
If cryptocurrency markets are lacking liquidity in general, that liquidity drops even further on the weekend, when many traders around the world are away from their computers. Stock markets close down over the weekend, but bitcoin keeps trading 24/7, with or without trading volume.
“It's a relatively thin market and news is exacerbated over the weekend when it's even thinner,” Brian Kelly, founder and CEO of digital investment firm BKCM, told CNBC last year.
Bitcoin Shorts Beware
Benzinga’s PreMarket Prep co-host Dennis Dick has discussed the big weekend moves in bitcoin on multiple occasions and says traders should think twice about keeping an open short position in the cryptocurrency over the weekend.
“I’m not saying it’s all manipulated, but we know markets are manipulated and an unregulated market is going to be manipulated much more,” Dick recently said on the show. “If you were really trying to push price, you’re going to push it when the liquidity is at its lowest point, and that’s probably over the weekend when traders are with their family, traders are doing things.”
Dick said crypto traders need to make sure to do what they can to protect themselves from unregulated market shenanigans. The long Memorial Day weekend was an even more extreme example of a weekend where traders were away from the market, and lo and behold bitcoin made a major move higher.
“The play has been for a long time to buy bitcoin ahead of the long weekends because it seems like it always has a nice strong move on those holiday weekends,” Dick said.
While bulls and bears can take advantage of low bitcoin liquidity, Dick said there’s likely not a lot of bitcoin short sellers out there due to the risk and difficulty in taking a short position.
“I don’t think it’s easy to do. And that’s an argument too is how efficient is the market when it’s very difficult to short the thing?”
In the longer term, Dick said he is not a believer in the fundamental bull case for bitcoin, but traders can still use technical analysis principles to trade the cryptocurrency in the short-term.
So far in 2019, the Grayscale Bitcoin Trust (OTC: GBTC) has ridden the weekend momentum to a 285.6% year-to-date gain.
Bitcoin traded around $12,270 at time of publication.
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