Unlike other financial markets, the cryptocurrency market is not limited by time. While stocks are limited by NYSE opening times and forex is limited by what market you want to trade, the cryptocurrency market has no such restrictions and is the only market truly not limited by time. However, many people believe this is not a good thing and trading at night can lose you more money than you gain.
The cryptocurrency market doesn’t go down at night. Unlike the stock and fx markets with predefined opening times, the crypto market’s lack of centralization means that there is no standardized time. Because of this, there is technically no “night,” as it is always open.
Night time drops in crypto are a myth because of how the normal markets work with time. If you’d like to learn when the crypto markets actually drop and what causes it, keep reading!
What Makes the Crypto Market Go Down?
The first thing to understand about crypto is that it is a relatively young industry. While this might not seem like a big deal, it means that many of the established patterns like you see in other markets are a lot harder to use here.
The crypto market goes down as a result of fear and major sell-offs. Heavy activity in different time zones, along with policy changes, may also cause the crypto market to go up or down.
I’ll take a closer look at each of these factors down below.
FUD is an acronym for Fear, Uncertainty, and Doubt. It is the direct opposite of FOMO and generally signifies a situation where traders in the market are driven by emotions and begin to panic sell, usually resulting in a market dump.
The usual cause of FUD is negative news about a project. For example, the Russia-Ukraine war saw $200 billion wiped off the crypto market in a relatively short time frame.
FUD is a massive problem in the crypto market, especially with the low barrier to entry. Almost anyone with a phone can get into the crypto market, and a lot of the liquidity is held by retail traders instead of other markets where hedge funds and large corporations dominate.
Because of this, many crypto traders do not have the experience or patience to ride out a price drop. This is one of the reasons why the crypto market sees such volatile swings. A minor sell-off can easily trigger panic, further plunging the price as people hurry to offload their crypto.
Distorted trading volumes can sometimes tell you what is causing a significant price dump. There is only one thing that causes the price of any crypto to crash, and that is a significant sell-off.
However, since one person can hold the same amount of crypto as 200 people, the single person could have the same effect on price in the short term as a group of people. People like this are called whales, and their actions can significantly influence the market positively and negatively.
The upside here is that since whales are usually just one person or a small group, their actions usually do not represent general market sentiment. Because of this, looking at trading volumes relative to price movement can give you an idea of a potential price reversal.
Once whales sell-off and affect the market, many people are likely to follow suit. However, since this price action is usually influenced by FUD and not concrete events, the price can sometimes recover as the panic dies down.
Time Zone Differences
Although there is no uniform ‘day’ or ‘night’ in cryptocurrency, different time zones can still influence the market from time to time. For example, some coins are heavily invested in specific countries or regions. Some projects are marketed primarily within specific countries, and many of their holders can be within that time zone.
Because of this, the waking and sleeping times in that time zone can cause fluctuations in trade volume, which can lead to price changes. Along with this, during the night in that time zone, people generally won’t be reacting to the news until they wake up the following morning.
Depending on the news they wake up to, the price can swing in different directions. This doesn’t explicitly mean that the price won’t move at all. It just shows that as people wake, the price will likely swing even more than it already has.
Policy changes are one of the greatest drivers of price. The right news can send crypto to the moon, but negative news can cause the price to bottom. One good example of this was the recent FUD surrounding cryptocurrency bans in different countries.
The tail end of 2020 brought new highs to Bitcoin and the larger market. Still, as the next year rolled on, the increasing popularity of cryptos led some governments to propose regulations to cryptocurrency, with some banning it outright.
These bans caused widespread panic, especially with economic powerhouses like China taking increasingly hostile stances against crypto.
On the other hand, adoption news like PayPal and El Salvador drives the price up. Because both sides of this are extremely important, it’s essential for traders to stay up-to-date with financial news to react as quickly as possible to incoming price swings.
The crypto market does not drop at night because there is no ‘night’ in crypto. Since the market is open 24/7 worldwide, different time zones affect prices differently.
While ‘night’ in some time zones can affect price occasionally, there is not enough uniformity in price action with time to make it a viable trading strategy.
- Investopedia: Why the Forex Market Is Open 24 Hours a Day
- Paypal: PayPal Launches New Service Enabling Users to Buy, Hold and Sell Cryptocurrency
- The New York Times: In Global First, El Salvador Adopts Bitcoin as Currency
- Quora: At what hours of the day are cryptocurrency prices likely to be the lowest?
- Wikipedia: Fear of missing out
- Investopedia: Technical Analysis