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Bitcoin’s weekend carnage sends jitters through the crypto markets

December 6, 2021, 12:00 PM UTC

Over a one-hour stretch on Saturday, when the stock markets were closed, the price of Bitcoin plunged by nearly $10,000 to $42,296. There are the typical headwinds of Omicron and Fed tightening, buffeting Bitcoin. But the weekend selloff is also rekindling fears that this 24/7 volatility has only just begun.

As crypto bulls know, Bitcoin’s Saturday selloff adds to nearly a month’s worth of pain. On Nov. 10, the king of crypto nearly hit $69,000, only to fall 20%—a true bear-market collapse. Other cryptos hit a wall this weekend, too, with Ether falling by 17.4% this weekend, but then bouncing back to around 4% by midday Saturday, and Binance Coin tumbling by 10%. There’s little relief on Monday morning: The crypto price board was awash in red ahead of the stock market open in the U.S. And, Coinbase Global, the big crypto exchange, was down nearly 5% in premarket.

All told, investors wiped one-fifth of the market value off the entire crypto sector at one point this weekend. Other risk assets got hit, too. Newly public companies lost around $50 billion, and 14% of the market value of a number of meme stocks fell. But it was nothing like the crypto markets as Bitcoin fell below its closely watched 200-day moving average.

The across-the-board drops cloud the outlook for institutional portfolios that remain on the fence about adopting Bitcoin to use as a hedge in this period of high inflation. According to asset manager Man Group, Bitcoin, in its history, “has had six 50%+ drawdowns.” And, Man Group adds, “it has a few more 50% drawdowns left in it.

That’s not to say it’s kryptonite, they add. It’s just highly volatile—and will continue to be.

Weekend swings

Wild weekend dips and spikes are probably the thing crypto investors most detest about the risk asset. These big weekend moves are caused by a number of factors including lower trading volumes and, in turn, isolated trading patterns leading to tightened liquidity.

Over the weekend, fewer investors tend to be making trades. And in the U.S., investors can only 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 “a big reason why you’re seeing some of the drawdown,” Chris King, CEO of Eaglebrook Advisors, tells Fortune.

At a time when the market liquidity is restricted, crypto traders deploy leverage to make trades. “The point is that we are seeing massive swings now because volatility is what makes the profit for these guys,” says Carol Alexander, professor of finance at the University of Sussex Business School, who argues that a majority of users could be making vast profits through highly leveraged trades that move the price of Bitcoin when they are deployed.

This weekend’s selloff may have been more painful than usual because the buy-the-dip crowd largely sat out the action.

“Buying the dip did not work well last week, so the retail traders could be pulling in their horns a bit,” Matt Maley, chief market strategist for Miller Tabak + Co., told Bloomberg.

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