Why Bitcoin, Ethereum, and Dogecoin Are Heading Lower This Weekend | The Motley Fool

Why Bitcoin, Ethereum, and Dogecoin Are Heading Lower This Weekend | The Motley Fool

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What happened

in the world of CRYPTOCURRENCIESAs it happens to be a 24/7 market, weekend price action can be quite fascinating to watch. Since most markets are off-limits to investors, traders who require action can find it in the crypto market.

So far this weekend has started off with an unfortunate blow to investors, with most major tokens losing steam. In the last 24 hours, Bitcoin (BTC -2.61%), Ethereal (ETH -5.08%)and dogecoin (DOGE -12.65%) they have sunk 3.3%, 5.7% and 12.4%, respectively.

So what

Last week provided investors with more headwinds than we have seen in a long time. The Securities and Exchange Commission (SEC) started two lawsuits against Binance and coin basetwo of the largest centralized crypto exchanges.

The allegations varied between these two enforcement actions, with market manipulation being the key focus of Binance’s lawsuit and alleged unauthorized security sales being the key focus of Coinbase’s lawsuit.

While Bitcoin and Ethereum appear to be in the clear, and most regulators seem to favor these digital assets being classified as commodities rather than securities, it is clear that regulatory oversight for the cryptocurrency sector is likely to improve substantially. With the largest cryptocurrency exchanges in the crosshairs of regulators, investors have reason to be concerned about how regulation may affect capital flows in this sector, and innovation in general, over time.

For meme tokens like Dogecoin, regulatory headwinds are certainly a bigger problem. It is much more likely that we will see regulators focus their enforcement efforts on projects with little utility or value to users and generate impressive profits for insiders such as Dogecoin and many of its peers. Therefore, it is not surprising to see this token fall much more precipitously than its mega-cap peers today.

Now what

Last week, I read an interesting perspective on why stock markets aren’t open on weekends. Liquidity shortages can lead to outsized moves (up or down), often seen in the volatility of after-hours trading around key events like earnings. In the case of cryptocurrencies, a 24/7 market, weekends can be much more volatile, which can encourage traders to take leveraged positions and ride the momentum in a way or other.

Perhaps today’s price action is simply the result of a combination of poor liquidity, sell-off activity, leverage, and momentum. That is almost certainly the case with most major rallies in this sector.

However, there is also the reality that the crypto market did not blink when these SEC lawsuits were announced. Bitcoin and Ethereum both experienced an initial drop but remained relatively stable. Today, investors appear to be seizing the opportunity to price this real risk.

chris macdonald has positions in Ethereum. The Motley Fool has positions and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.

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