The Sunday Effect – Why Crypto Prices Drop On Weekends

By Kriss
Published on: June 14, 2021

Cryptocurrencies don’t take any days off.

Digital currencies 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.

A potential drawback, crypto can experience enormous market swings on the weekends or even holidays. In mid-April, 10% of Bitcoin’s value was razed over one weekend.

In general, Bitcoin returns have been lower on the weekends in 2021 than they have been 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. But nearly half of the weekends, Bitcoin prices have ended up higher at market open Monday than they were on Friday, according to data collected by Eaglebrook Advisors, a crypto asset manager for financial advisors.

Even this past holiday weekend, which some investors dreaded would chisel away returns even further after an arduous two weeks, delivered a slight boost to Bitcoin’s value. The coin was trading at $36,642 on June 1 2021, up more than $950 from that Friday.

Whether Bitcoin is spiking or seeing a drawdown, here are some factors that seem to be swinging the prices on weekends, according to crypto experts.

What is "The Sunday Effect"?

Strip Bitcoin out of the picture, and Crypto returns have generally been weaker on weekends than they have been on weekdays. (Taking exchange-traded Bitcoin out of the picture also makes a difference, but cryptocurrency prices generally aren’t truly market-weighted. Their owners and holders tend to behave differently than institutional investors.) Cryptocurrency traders are just like any other investors — they care about price and profitability, and want to buy or sell if they think prices are too high or too low. In other words, the weekend effect affects Bitcoin and cryptocurrencies more broadly because they have business uses, and their price isn’t driven by earnings or dividends. When investors care about price, they tend to fixate on Fridays. They do this for a few reasons.

What causes The Sunday Effect?

Analysts at TradingView dug into the data to discover the reason behind the weekly fluctuation in cryptocurrencies. “The lack of volume creates a negative influence on price over time and makes it much easier for arbitrage traders to take advantage of the low volatility,” says TradingView’s Joel De La Beauregard. “We believe the Sunday effect is mainly due to the number of trading volumes on exchanges, as we have shown that the volume varies greatly on Saturdays and Sundays, which is when a lot of exchanges have low trading volumes.”

This liquidity issue can be compounded on weekends- when fewer investors tend to be making trades. U.S. investors are only able to trade with money already in their accounts, as wiring more money into an account requires participation of banks, custodians and other financial institutions, which don’t do business on weekends. The lack of liquidity is an enormous reason why you are seeing The Sunday Effect.

Three weeks ago, the digital currency crashed following Elon Musk’s tweet that Tesla had suspended vehicle sales for Bitcoin, and later China’s announcement that it was cracking down on Bitcoin mining. When headlines such as these emerge late in the week, they can have a devastating impact on Bitcoin returns, particularly because some investors will be late to read the news. If there’s negative news that comes out on Thursday and Friday, sometimes that will be reflected on the weekend.

Why does The Sunday Effect matter for Bitcoin investors?

Risk versus reward as cryptocurrencies become more mainstream, people may choose to buy and sell them on weekends. Since Bitcoin is more popular in early-morning trade hours, a Sunday effect can often lead to slight risk-reward disparity, according to a recent study published in the Journal of Financial Markets.

The Bitcoin market is dominated by a few enormous players. Bloomberg reports that about 2% of anonymous accounts hold 95% of Bitcoin. Any move from these giants, often called whales, can have a “material impact” on Bitcoin’s price, according to Roberto Talamas, an analyst at crypto research company Messari.

Why does The Sunday Effect mean for other cryptocurrencies?

On the weekends there are less people trading crypto on exchanges like Binance, Coinbase, Gemini and it becomes much easier for big whales to manipulate the market in order to buy or sell at more favorable prices in order to get more Bitcoins out of other cryptocurrencies. Overall other altcoins are also affected due to The Sunday Effect, because the dependence on Bitcoin exists because all altcoins have the most trading pairs against Bitcoin.

Conclusion

Cryptocurrency investment should be looked at as a long-term, diversified asset allocation. While a lot of buzz surrounds the trading day and week-to-week volatility, investing in crypto requires a longer-term mindset. Not only do Bitcoin investors have to deal with stomach-churning volatility during the week, they apparently can’t take the weekends off, either.

Kiara Sofia Smith

My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.