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Cryptocurrency is known for volatility and some experts say crashes tend to happen on weekends.
“This has been a phenomenon in crypto for several years,” said Stephen McKeon, associate professor of finance at the University of Oregon in Eugene, and partner at Collab+Currency, a cryptocurrency-focused investment fund.
These weekend dips may have significant effects as regulators weigh the future of digital currency, experts say. Here’s why these crashes may be happening.
Less trading on weekends
One of the reasons for weekend cryptocurrency volatility is there are fewer trades, said Amin Shams, assistant professor of finance at Ohio State University in Columbus, Ohio.
“When the volume is low, the same trade size can move prices a lot more,” he said.
Trading on margin
Another reason for weekend price swings may be investors trading cryptocurrency on margin, which is borrowing money from the exchanges to buy more assets, Shams said.
When digital currency prices dip below a certain level, traders must repay the loan, known as a “margin call.”
But if investors don’t cover the loan, exchanges may sell the digital currency to ensure they receive the borrowed money back.
With banks closed over the weekend, some traders may struggle to pay off the borrowed funds because they can’t move money into their accounts, triggering sell-offs from exchanges, Shams said.