Crypto markets work 24/7. Traders do not

Unlike traditional equity markets, which operate during specific trading hours and holidays, the cryptoasset market operates 24/7. This means the market never closes, leaving the possibility to trade cryptoassets anytime, anywhere. There are several reasons why this is possible. Cryptoassets operate on decentralised networks, or seemingly decentralised platforms, which are spread globally, enabling non-stop trading around the clock. In addition, a substantial amount of trading, at least in the context of centralised exchanges, is implemented via trading bots. The latter can execute trades at any given time, therefore contributing to the 24/7 nature of cryptoasset markets.

However, while cryptos do not rest during the weekends, the stock market and most institutional and professional investors do. The market is less compelling to trade as low participation translates into lower trading volume. This incentivises day traders to avoid their bets on weekends as the markets may be more prone to manipulation as liquidity dries up. As a result, the weekends experience a drop-off in participation by “smarter money” as institutional investors may not operate during weekends.

In this article, we shed some light on the uneven nature of cryptoasset trading over the week. Specifically, we provide evidence of a noticeable dip in trading volumes over weekends for Bitcoin and other major alternative coins. Intuitively, such a reduction should not be taken as a mere statistical anomaly but as a potential source of additional risk for traders operating during the weekend. Crypto trading offers a thinner, yet potentially riskier, landscape during the weekend due to less crowded market conditions. The results show that lower volume is accompanied by lower volatility. Although this may sound like good news for traders, high volatility is the best friend of day traders and speculators, giving ample room to decide when to buy and sell. However, the same amount of volatility goes missing during the weekends. 

Bitcoin trading and the weekend effect

We start by looking at the average Bitcoin trading volume vs USD/USDT/USDC for a given day of the week for four major exchanges: Kraken, Coinbase, Binance, and Bitfinex. These rank amongst the largest centralised exchanges in terms of trading volume. Since we focus on data from individual exchanges, the time series differ for each separate estimation. For instance, while the ending date of September 1st, 2023, is common for all four exchanges, the initial date differs. For example, the sample starts on November 1st, 2019, for Binance; November 1st, 2021, for Coinbase; November 1st, 2021, for Kraken; and November 1st, 2018, for Bitfinex. 

Figure 1 reports the ratio of the average trading volume on a given day of the week normalised by the largest day-of-week trading volume. It would be difficult to discern if volume changes over the week occur for reasons other than the days of the week professional traders work. Still, the results suggest a considerable dip in trading volume across major exchanges, with trading volume on weekends between 40% to 50% lower compared to average market activity during the week. 

Figure 1: Average volume of BTC/USD for each day of the week

    

Source: Aaro Capital Research
Notes: The figure shows the average BTC trading volume expressed in USD/USDT/USDC for each day of the week across four major centralised exchanges: Binance, Coinbase, Bitfinex and Kraken. The figure reports the average trading volume on a given day of the week normalised by the day with the most significant trading volume. 

This “day-of-week” effect in trading volume is consistent with the evidence reported for foreign exchange markets. For instance, Bollerslev and Domowitz (1993) show that the market activity on the Deutsche mark-dollar exchange rate substantially declined over the weekend. Akram et al. (2008) and Kaul and Sapp (2009) also provided evidence of a substantial decline in market activity and trading volume in FX markets over the weekend. 

Less volume means lower liquidity and often fewer opportunities in a market already touted as less liquid than traditional equity and fixed income. Yet, contrary to the conventional wisdom that when the volume is low, the same trade size moves prices more, the results suggest that lower trading volume does not come with higher volatility, but in fact, it is quite the contrary. Figure 2 shows this case in point. The figure reports the average realised volatility for each day of the week in the BTC returns vs USD/USDT/USDC normalised by the largest day-of-week realised volatility. The data pertain to the same exchanges and sample period as in Figure 1. 

Figure 2: Average volatility of BTC/USD returns for each day of the week

    

Source: Aaro Capital Research
Notes: The figure shows the average BTC realised volatility for each day of the week across four major centralised exchanges: Binance, Coinbase, Bitfinex and Kraken. The figure reports the average realised volatility on a given day of the week normalised by the day with the largest realised volatility. 

Bitcoin prices are substantially less volatile on the weekend than during the week. The BTC price volatility is almost 60% lower than on Thursdays and is between 20% and 40% lower compared to other days of the week, on average. One comment is in order, though. Lower volatility does not necessarily mean markets are less risky over the weekend. When trading volumes are thin, bid and ask prices widen, deteriorating pricing efficiency and increasing transaction costs for traders. In this respect, it is fair to say that while trading BTC is always inherently risky, weekend trading adds more risk. However, if you can tolerate the risk, you could still trade profitably on weekends. Trading during the weekend can offer unique opportunities for investors to take advantage of global news and events that may impact market sentiment that has not yet been incorporated into traditional equity markets. 

Evidence from alternative coins

In the following, we expand the evidence in Figure 1 and investigate the “day-of-week” effect in trading volume across a large cross-section of more than 300 so-called alternative coins. Specifically, we consider the trading volume of cryptoasset pairs, excluding BTC and ETH, against the USD/USDT/USDC. We sum the trading volume of each cryptoasset pair for each day of our sample and average the corresponding values for each day of the week. This gives an aggregate picture of the average market activity for alternative coins within the week. Similar to the analysis mentioned above, we sample the cryptoasset pairs separately from four significant exchanges: Kraken, Coinbase, Binance, and Bitfinex. The sample starts on November 1st, 2019, for Binance; November 1st, 2021, for Coinbase; November 1st, 2021, for Kraken; and November 1st, 2018, for Bitfinex. The September 1, 2023, ending date is joint for all four exchanges. Figure 3 reports the results. To increase readability, we normalise the trading volume for each day-of-week by the largest day-of-week trading volume, which tends to occur on Wednesday.

Figure 3: Average trading volume of top altcoins for each day of the week

    

Source: Aaro Capital Research
Notes: The figure shows the average trading volume against USD/USDT/USDC of the top alternative coins (excluding BTC and ETH) for each day of the week across four major centralised exchanges: Binance, Coinbase, Bitfinex and Kraken. The figure reports the average trading volume on a given day of the week normalised by the day with the most significant trading volume.

The results largely confirm the evidence for Bitcoin trading. Market activity significantly declines over the weekend, with trading volume between 50% to 30% lower than on weekdays. Similarly to Figure 2, the results show that volatility is subdued for major alternative coins during the weekend, seen in Figure 4. Specifically, we calculate the average realised volatility of alternative coins for each day in our sample and then average this value for each week. This gives a tendency measure of average volatility within a given week. The exchanges and the sample period are the same as in Figure 3.

The results show that the drop in volatility for altcoins is even more significant than for Bitcoin (see Figure 2). The daily realised volatility over the weekend is 70% smaller during weekends compared to Thursdays, which is the average day with the highest realised volatility. The day-of-week effect in trading volume and volatility is not confined to major cryptoassets but pervasive across the market. 

Figure 4: Average volatility of top altcoin returns for each day of the week

    

Source: Aaro Capital Research
Notes: The figure shows the average realised volatility of the top alternative coins (excluding BTC and ETH) for each day of the week across four major centralised exchanges: Binance, Coinbase, Bitfinex and Kraken. The figure reports the average realised volatility on a given day of the week normalised by the day with the largest realised volatility. 

Conclusions

Trading hours across financial markets and asset classes vary. Like FX markets, cryptoasset trading is an around-the-clock activity, allowing you to trade anytime, seven days a week. As such, one may argue that trading in cryptos over the weekend may be as risky as during the rest of the week. The reality is different, though. Market quality deteriorates over the weekend, with significantly lower trading volume and volatility. A thinner market entails higher trading costs and an increasing likelihood of market manipulation, as large orders can move the market quickly.

This article reviewed the within-week pattern of trading volume and realised volatility. We showed that the weekend effect is not confined to Bitcoin but pervasive across cryptoasset pairs and different (centralised) exchanges. This weekend effect in trading volume is similar to more traditional FX currency markets and suggests another dimension in which cryptoassets may be similar to conventional markets; markets might work 24/7, but traders do not.

Bibliography

Akram, Q. Farooq, Dagfinn Rime, and Lucio Sarno. "Arbitrage in the foreign exchange market: Turning on the microscope." Journal of International Economics 76.2 (2008): 237-253.

Bollerslev, Tim, and Ian Domowitz. "Trading patterns and prices in the interbank foreign exchange market." The Journal of Finance 48.4 (1993): 1421-1443.

Kaul, Aditya, and Stephen Sapp. "Trading activity, dealer concentration and foreign exchange market quality." Journal of Banking & Finance 33.11 (2009): 2122-2131.

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