Bitcoin risks 'sharp weekend price swings’ as ETFs suck up liquidity

Bitcoin has become more susceptible to wild weekend volatility since the launch of spot Bitcoin exchange-traded funds, 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 grew.

But the increased move to weekday Bitcoin trading “heightens the risk of sharp weekend price swings during market stress,” Kaiko wrote.

During the last large-scale Bitcoin (BTC) sell-off on Aug. 5, when it dipped below $50,000, Kaiko noted “liquidity fragmentation” in the crypto markets, leading to price discrepancies across exchanges — particularly affecting smaller, less liquid exchanges.

It noted that during the sell-off, 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.”

“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.”

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%. While 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.