ETFs Could Trigger Sharp Weekend Swings Amid Bitcoin Market Price Volatility

Bitcoin Market Price Volatility is once again in the spotlight as analysts warn of potential sharp price swings over the weekend. The increased activity surrounding Bitcoin ETFs (Exchange-Traded Funds) is being cited as a significant factor that could exacerbate fluctuations in the cryptocurrency’s price. With liquidity being sucked up by these financial instruments, traders are bracing for what could be a turbulent ride ahead.

Bitcoin Market Price Volatility: ETFs and Their Impact on Liquidity

ETFs have been hailed as a major milestone for the cryptocurrency market, offering investors an easier and more regulated way to gain exposure to Bitcoin. However, this development has also brought unintended consequences, particularly in terms of market liquidity. As ETFs accumulate Bitcoin to back their shares, they effectively remove a portion of the available supply from circulation, reducing liquidity.

“Bitcoin ETFs are designed to provide investors with access to Bitcoin without the need to directly purchase and hold the asset,” explains Sarah Thompson, a crypto market analyst at CryptoHub. “But as these funds accumulate large amounts of Bitcoin, they reduce the available supply in the market, leading to increased Bitcoin market price volatility.”

Weekend Price Swings: 

The concern over sharp price swings during the weekend is not unfounded. Historically, weekends have been a period of higher volatility for Bitcoin and other cryptocurrencies. This is often attributed to lower trading volumes, which can amplify price movements. With the additional strain on liquidity caused by ETFs, the potential for dramatic price shifts becomes even more pronounced.

“Weekends are traditionally volatile for Bitcoin, and with ETFs now absorbing liquidity, the market is more susceptible to sudden price movements,” says Michael Carter, Chief Investment Officer at Blockchain Capital. “Traders should be prepared for the possibility of sharp swings, especially as we move into a period of reduced market participation.”

Bitcoin Market Price Volatility has become more susceptible to wild weekend  since the launch of spot Bitcoin exchange-traded funds (ETF) in the United States, according to Kaiko Research. In an Aug. 12 report, Kaiko’s crypto analysts noted Bitcoin’s liquidity has become more concentrated on weekdays, particularly in BTC/US dollar markets.

It noted that weekend trading volatility has generally declined since 2021 and has previously reported that Bitcoin’s weekend trading volumes have dropped as institutional and ETF activity has grown. However, the increased move to weekday Bitcoin trading “heightens the risk of sharp weekend price swings during market stress,” Kaiko wrote. 

It noted that during the sell-off, Bitcoin moved 14% between the US market close on Friday, Aug. 2, to its reopening on Monday, Aug. 5, “similar to major sell-offs since 2020.” “Unlike traditional markets that close on weekends, crypto markets operate 24/7. This causes sell-offs that start on a Friday to worsen weekend uncertainty, amplifying price impacts.” The latest sell-off saw Bitcoin’s price move almost as much as during the US banking crisis in early 2023. Source: Kaiko Research 

Meanwhile, Kaiko said a $100,000 Bitcoin sell order during the Aug. 5 sell-off would have produced significant price slippage depending on the exchange and trading pair. Zaif’s Bitcoin/yen pair saw slippage of up to 5.53%, while KuCoin’s BTC/euro pair reached nearly 5.5%. Meanwhile, US dollar stablecoin pairs on BitMEX and Binance.US saw slippage reach up to 4% on the day. The 11 spot Bitcoin ETFs in the US have drawn in $17.3 billion in net inflows since January and currently hold about 4.7% of Bitcoin’s supply, giving them a reasonable hold over the cryptocurrency’s liquidity.

In the ever-evolving world of cryptocurrency, Bitcoin market price volatility is a factor that cannot be ignored. As the market matures and new financial products like ETFs gain traction, the landscape will continue to shift, offering both risks and rewards for those willing to adapt. The Bit Gazette has the latest crypto news and expert analysis.