The Sunday Scaries (And Other After-Hours Price Swings)

Authored by Makara
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Makara

Published September 14, 2021
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A recent New York Times article described a crypto entrepreneur based in Hong Kong as “often work[ing] around the clock.” He kept a blanket on the floor near his desk and napped on a beanbag chair. His lifestyle sounded intense—kind of like caring for a newborn baby. But apparently not sleeping can be a necessity for those who want to take advantage of a particular quirk of crypto trading: Unlike legacy financial markets, which operate during circumscribed hours, crypto markets never close.

That’s not to say legacy financial markets operate only during standard office hours like they did in the 1950s. While the opening and closing bells do mark the beginning and end of the trading day here in the U.S. (at 9:30 a.m. EST and 4 p.m. EST, respectively), some transactions are permitted after hours, until 8 p.m., or in mornings before the markets open. This has been true since the early 1990s, when high net worth individuals and institutional investors were allowed to make limited trades after hours through electronic communications networks, which automatically match buy and sell orders. Recently, better technology has opened after-hours trading to ordinary investors, with some limitations: After-hours and premarket trades are processed as soon as their conditions are met, but because there are fewer people trading at these times, some orders may not go through at a preferred price or may not go through at all.

It can be a real hassle. Crypto, however, makes trading at any time—and at any location worldwide—much easier, since both centralized (run by a central authority) and decentralized (run by algorithms) crypto exchanges are global and literally never close. This is what convinces some folks to skip sleep. It also affects everything from the calculation of price changes to the best times to execute trades. Here’s what you need to know.

24/7 trading can make crypto metrics confusing.

You’re probably familiar with the up and down arrows followed by numbers that run across every TV stock ticker. They are measures of a stock’s price change, and they inform investors of the direction a security’s price is moving and by how much, as compared to the previous day’s closing price. Crypto indexes offer these same measurements—you’ll see them marked as “24-hour percentage change,” or 24h%. But be aware: Because crypto never closes, these metrics are much less informative than traditional stock tickers are. Crypto metrics compare the current price to the price exactly 24 hours ago, a rolling number that changes as the day goes on. Given crypto’s significant volatility, a 24h% metric may give you a misleading impression about how a price is moving. For example, if Bitcoin’s price stayed stable except for a five-minute period at 3 p.m., when it dropped by 50% (before returning to the previous price), the next day at 3 p.m., the 24h% change metric will appear as though Bitcoin had shot through the roof—for five minutes, at least—when effectively it has been sitting at the same price.

Crypto markets can get weird on weekends.

Just because a market is open, it doesn’t mean it’s bustling. This is true of nights and weekends in both traditional finance after-hours trading and on crypto exchanges. Nonstandard trading hours see less overall activity, which leads to less money in circulation (called lower liquidity) and wider spreads between the prices of purchases and sales. If you are offering to buy at a price much lower than the few sellers are looking to sell, it can take a lot longer to find a willing transactional partner. This creates wide swings in prices. One sale may happen that prices BTC at $50,000 because the seller found a willing buyer. But an hour later, the only willing buyer may refuse to pay more than $45,000.

On weekends, in particular, cryptocurrencies tend to drop, in part because the market has less cash because those who borrow on credit may find that they cannot access cash to pay off their liabilities when prices drop, triggering sell-offs—which leads to further price drops. About 82% of weekends in the first half of 2018 saw Bitcoin’s price move at least 3% in either direction, and 60% saw moves of 5% or more. According to Charles Edwards, the founder of Capriole Investments, the best time to buy in crypto markets these days is Sunday nights, after the weekend dip and in anticipation of the NYSE opening on Monday morning.

International investors play a role, too.

One important question to ask about after-hours trading in crypto is “Whose after hours?” Crypto’s global customer base means time zones affect what happens where and when. Back in 2017, Bitcoin trading was higher during the operating hours of Asian banks, because South Korean investors were responsible for the highest volume of trading. Lately, it appears to have switched to the operating hours of the NYSE, reflecting increased interest and investing by American consumers. But that can all change depending on the coin—and it can change in an instant.

Another time-zone effect to consider is that not all news affects all investors equally. Financial reporting in a Hong Kong newspaper may, for example, exert the most effects on cryptocurrencies during Asian market hours, whereas an English-language tweet by Elon Musk could swing crypto prices during U.S. opening hours. News that a London-based bank is investing in Bitcoin futures might hit the market right at 9 a.m. GMT. It pays to pay attention to what time it is in whatever country you’ve decided to get your investing information from.

After-hours trading might be getting even stranger.

Now that deeper-pocketed U.S. investors, such as hedge funds, are beginning to take part in crypto, strange phenomena have started taking place during off hours. A January 2021 article in Reuters reported that trading volumes have recently begun trending up on weekends rather than down. The authors theorized that one cause is the use of algorithms to chop large purchase orders into chunks executed over longer periods of time. A company that wants to buy $425 million worth of Bitcoin, for example, could break that order into smaller bits and run the full trade over days or weeks. Constructing a transaction this way can hide the overall size of the order and prevent it from swinging prices unfavorably, but if the smaller chunks bleed over into the weekend or after hours, they can still cause wild price fluctuations, because the amount of money in circulation is lower than usual at those times.

You probably shouldn’t skip sleep to take advantage of crypto markets.

That Reuters article found another crypto insomniac, a guy who traded coins in between bites of Christmas dinner. Clearly it’s becoming common for investors to keep an eye on off-hours markets to take advantage of their wild swings. If you can time it right—and are willing to give up the sleep—it can be a great way to make some money. But we see crypto as more of a long-term investment than a day-trading adventure. You can still make money, sometimes quite a bit, without completely upending your life.