Bitcoin Volatility Hits Record Lows Over Weekends as ETFs Gain Popularity

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Bitcoin, the world’s largest cryptocurrency, has been exhibiting intriguing behavior with its volatility hitting lows during weekends.
According to crypto research firm Kaiko, the proportion of Bitcoin traded over the weekend dropped to an all-time low of 16% this year.
A noteworthy factor contributing to this trend appears to be the introduction of spot Bitcoin ETFs, which have aligned Bitcoin’s trading patterns more closely with traditional stock exchanges.

Discover how Bitcoin’s volatility has changed in recent times due to new market dynamics and the impact of Bitcoin ETFs.

Significant Decline in Weekend Bitcoin Trading

This year has seen a significant drop in Bitcoin trading over the weekends, with activity falling to just 16%. This phenomenon can be largely attributed to the advent of spot Bitcoin ETFs, which resemble traditional stock trading schedules, thereby reducing price fluctuations over weekends.

The Impact of Bitcoin ETFs on Market Behavior

Unlike traditional stocks, Bitcoin has always been recognized for its 24/7 trading capability, including weekends. Historically, this led to what was known as “Wild Weekends” with high volatility. However, with trading volumes plummeting from 28% in 2019 to the current 16%, the influence of Bitcoin ETFs becomes evident. These ETFs, approved by the US Securities and Exchange Commission in early 2024, have captured significant investor interest, propelling Bitcoin prices to peak levels in March. Although some gains were subsequently erased, Bitcoin remains approximately 45% up year-to-date, trading around $61,000.

Shifts in Trading Volume and Patterns

Unlike cryptocurrencies generally traded at any time on exchanges like Binance, Bitcoin ETFs adhere to conventional market hours, ceasing weekend trading. Kaiko reported a rise in Bitcoin trading between 15:00 and 16:00 from 4.5% to 6.7% in Q4 2023. This timeframe, known as the benchmark fixing window, is when Bitcoin prices are determined for calculating the ETF’s net asset value.

Influence of Financial Institutions and Market Structure

The collapse of crypto-friendly banks like Silicon Valley Bank and Signature Bank in March 2023 also played a role in reducing weekend trading volumes. Market makers no longer have access to 24/7 payment networks to trade in real-time, leading to a significant downturn in off-peak trading activities. As Kaiko noted, “The continuation of the weekend/weekday discrepancy is likely since market makers, earning revenue from significant trades, have limited incentives to provide liquidity in a low-volume environment.”

Implications of Lower Volatility on Bitcoin’s Market Maturity

Kaiko’s analysis also highlights how Bitcoin’s embrace by institutional investors through ETFs has tempered volatility. Unlike the record levels of 106% in November 2021, when Bitcoin hit new highs, its volatility stood at only 40% by March 2024, even when it reached another all-time high of $73,798. The consistent trend of lower volatility, maintained below 50% since early 2023, signals Bitcoin’s evolution towards a more mature asset class.

Conclusion

In summary, the trading dynamics of Bitcoin have undergone notable shifts primarily due to the launch of Bitcoin ETFs and the collapse of key financial institutions. These factors have collectively reduced weekend trading volumes and curbed volatility, indicating a gradual transition of Bitcoin toward a stabilized market entity. While it’s early to declare this the ‘new normal,’ the changes in Bitcoin’s market structure over the past year offer significant insights into its evolving behavior.