One of the difficulties of trading cryptocurrencies is determining the best time to do so, given that the market is open around the clock and across the world.
To successfully complete large buy and sell orders, traders must first determine the periods of highest liquidity (the number of willing sellers and buyers at any given time) and trading volume (how many times a coin changes hands at a given time). In the same way, a fruit and vegetable vendor with a large inventory would do well to locate his stall in a highly trafficked area of the market.
This article is part of CoinDesk’s Trading Week.
Liquidity is less of a concern for novice traders or those making smaller trades. They may prefer to continue trading on more established platforms, where prices are less susceptible to manipulation by large orders.
Spot traders (those who buy and sell with instantaneous delivery of assets) aren’t the only ones who have trouble determining the best times to transact; investors in decentralized finance (DeFi) tokens face the same problem.
Since blockchain transaction fees, such as Ethereum gas fees, are responsive to network congestion rather than the size of a trade, they can fluctuate widely from hour to hour. This makes it especially important for beginners with small portfolios to keep an eye on these prices.
If a trader wants to buy or sell $100 worth of cryptocurrency during a peak trading period, he might have to pay as much as $200 in gas fees.
To shed light on the mysteries of cryptocurrency trading and why time is important, CoinDesk reached out to crypto metrics firms, market analysts, and professional traders.
Before widespread use of cryptocurrency took off around the year 2020, trading patterns were fairly standard. Trading, along with other crypto activities like mining, was primarily located in Asia, and Western institutions avoided crypto at all costs.
Bitcoin bulls worried that the Chinese New Year in February would cause miners to dump bitcoin en masse and send prices plunging because of the Asian impact until 2021.
However, there was a shift in those habits.
Mati Greenspan, CEO of the investment advisory firm Quantum Economics, said that “the sunrise in Japan was a big deal for bitcoin prices” during the 2017 rally. Many of the developments have moved westward since Wall Street became directly involved.
“These days the early Asian session is so thin that we suspect some traders may be using it to manipulate the price,” he continued.
A large body of evidence indicates that cryptocurrency trading activity closely tracks regular U.S. market hours, suggesting a westward migration of crypto investment from the East.
According to William Johnson, an analyst at crypto analytics firm Coin Metrics, Bitcoin spot volume is highest during U.S. stock market hours, and especially around the opening bell.
A Coin Metrics graph provided to CoinDesk indicates that in Q1 2022, there was a clear upward trend in correlation with U.S. trading hours.
Never trust the weekends
The cryptocurrency market is open 24/7, but U.S. stock traders are usually resting on Saturday and Sunday. So, how should we interpret the market’s behavior over the weekend?
In the words of Cantering Clark, a pseudonymous crypto trader and market analyst, “smarter money,” or capital controlled by institutions and professional traders, “drops off” on the weekends. He elaborated on how algorithmic trading bots and market makers (or liquidity providers) are particularly active over the weekend. He described the current market as “less compelling to trade.”
Genesis Volatility’s “realized volatility” chart shows that volatility is lower on weekends. Volatility is sought after by traders because it provides entry points for profitable trades.
The weekend has traditionally been a slow time for traditional markets like forex. This knowledge led banks to manipulate the market and impose their will on it. And it’s the same in crypto, where for a long time it was thought that any weekend activity was ‘wrong’ and worth erasing, as Clark put it.
Clark explained that if bitcoin prices rise on the weekend, traders may expect a decline during the following week. It’s wise to tell oneself, “Never trust the weekend.”
Best time for trading DeFi tokens
DeFi is a popular trading platform because it allows users to buy, sell, and otherwise interact with tokens that aren’t listed on traditional exchanges. But when do prices on DeFi and Ethereum tend to be most favorable for trading?
Ethereum transactions incur gas fees, which can fluctuate in cost based on the volume of traffic on the network. For traders with limited resources, this is a potentially game-changing consideration.
An April 2022 interview with CoinDesk featured Flipside Crypto data scientist Connor Higgins, who said, “If we break down fees by the hour, we can see fewer but larger transactions Midnight Eastern Time, with peak activity beginning at 5 p.m.. ET, which used to be the most expensive time to transact.”
People appear to be making an effort to save time and money by avoiding the busiest times of the day. However, Higgins pointed out that this only made the less busy hours busier and more expensive.
According to a heatmap published by Any Block Analytics in October 2022, the most expensive time of day is when the United States wakes up to trade, and gas prices continue to fall on weekends. This is depicted in the graph below, where prices start to rise precipitously after 13:00 UTC (or 9 a.m. in New York City). Therefore, if you want to save money on gas and the trade isn’t urgent, it’s best to wait until non-U.S. market hours to make the exchange.
Centralized and decentralized exchange activity
Due to Ethereum’s public blockchain, data analytics firms can easily label wallets and monitor their transactions. Then they can monitor Ethereum trades on all the major centralized exchanges.
Charting the top 20 gas spenders, Nansen, a blockchain analytics firm, found that trading activity on Coinbase and Binance, the two largest centralized exchanges in the world, begins to pick up in the morning U.S. time and peaks in the early evening.
But as Martin Lee, a data journalist for Nansen, pointed out, a similar trend can be seen in a chart of the top 20 gas consumers that monitors smart contracts in DeFi. The time patterns of the biggest decentralized exchange, Uniswap, are very similar to those of centralized exchanges.
Despite the fact that centralized and decentralized exchanges have vastly different characteristics (for example, open order book systems versus automated marker generators), they all appear to converge on the same time patterns because the United States trading hours are universally accepted.