Bitcoin has become more susceptible to wild weekend volatility since the launch of spot Bitcoin exchange-traded funds (ETFs), according to a recent report by Kaiko Research. The crypto analytics firm noted that Bitcoin's liquidity has become more concentrated on weekdays, particularly in BTC-US dollar markets, leading to heightened risks of sharp weekend price swings during market stress.
Liquidity Fragmentation and Price Discrepancies
During the Bitcoin sell-off on Aug. 5, when the cryptocurrency dipped below $50,000, Kaiko observed "liquidity fragmentation" in the crypto markets, resulting in price discrepancies across exchanges, particularly affecting smaller, less liquid exchanges. Bitcoin moved 14% between US market close on Friday, Aug. 2, to its reopening on Monday, Aug. 5 — "similar to major sell-offs since 2020".
Increased Sell-Off Volatility
The latest sell-off saw Bitcoin's price move almost as much as during the US banking crisis in early 2023. 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%. US dollar stablecoin pairs on BitMEX and Binance.
US saw slippage reach up to 4% on the day.
The Impact of Bitcoin ETFs
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. This increased institutional activity has contributed to the concentration of Bitcoin trading on weekdays, leading to the heightened risk of weekend price volatility.
