Originally published on: August 13, 2024
As per findings from Kaiko Research, Bitcoin has seen a surge in erratic weekend price fluctuations following the introduction of spot Bitcoin exchange-traded funds (ETFs) in the United States. This has significantly impacted the digital asset’s trading environment.
Weekday Liquidity Focus
Kaiko’s crypto analysts highlighted in their August 12 report that Bitcoin’s liquidity has become notably concentrated during weekdays, predominantly within the BTC/USD markets. The report underlined the decreasing weekend trading volatility trends starting from 2021 and emphasized how the heightened activity during weekdays has raised concerns about potential drastic price movements over the weekends.
Weekend Price Swings: A Growing Concern
The escalation in weekday Bitcoin trading has raised red flags around the possibility of sharp and unpredictable price swings over the weekends, especially when the market faces stress. With institutional and ETF participation on the rise, this vulnerability has become more pronounced, according to Kaiko.
Impact on Market Fragmentation
During the recent significant Bitcoin sell-off on August 5, which saw the price dropping below $50,000, Kaiko observed significant liquidity fragmentation in the crypto markets. This led to price variations across different exchanges, particularly impacting smaller and less liquid platforms.
Liquidity Challenges and Price Discrepancies
Kaiko’s analysis revealed that during the August 5 sell-off, Bitcoin experienced a 14% variation from the US market closing on Friday, August 2, to its reopening the following Monday. Notably, this pattern mirrors previous major sell-offs observed since 2020, indicating a trend in increased volatility during weekends.
At the same time, Kaiko pointed out that a $100,000 Bitcoin sell order during the August 5 event would have resulted in substantial price slippage depending on the exchange and trading pair in question. For instance, Zaif’s Bitcoin/yen pair witnessed slippage of up to 5.53%, while KuCoin’s BTC/euro pair experienced nearly 5.5% slippage. Similarly, US dollar stablecoin pairs on BitMEX and Binance.US recorded up to 4% slippage on that day.
ETF Influence on Bitcoin Liquidity
Currently, the 11 spot Bitcoin ETFs in the US have attracted around $17.3 billion in net inflows since the beginning of the year. These ETFs collectively hold approximately 4.7% of Bitcoin’s total supply, thereby exerting a significant influence on the digital asset’s liquidity.
In conclusion, the proliferation of Bitcoin ETFs and the shifting trading patterns have significantly impacted Bitcoin’s price stability, particularly over weekends. Traders and investors must remain vigilant and adaptable to navigate through the evolving cryptocurrency market landscape.
