Avoid buying Bitcoin on weekends now. It could save you some money.
What the price of Bitcoin will do this weekend is anyone’s guess, but here’s one good bet: The last week’s turmoil in banking will make it more expensive to trade.
Since Silvergate Capital (ticker: SI) said it was winding down and Signature Bank (SBNY) failed, token prices on various trading platforms such as Coinbase and Gemini have diverged widely. Traders have paid hundreds of dollars, and sometimes more than $1,000, more for a single Bitcoin on one platform than on others.
The inefficiencies in the crypto market appear to be at least partially a result of the debacles at the two banks. Each operated prominent payment networks — called SEN and Signet — that enabled customers to send dollars to each other almost instantly at any time, seven days a week.
That’s important for crypto traders, who buy or sell tokens outside banking hours and often need liquidity faster than the couple of days it can take to process a wire transfer. The ability to move money quickly is also critical for market makers who need to get dollars from one exchange to another to take advantage of price differences and potentially arbitrage them away.
Silvergate, which is in the process of closing down its operations, has shut down SEN. The sign is still in operation, but some customers have stopped using it due to the uncertain future. Reuters reported that government regulators have said any buyer of Signature Bank must exit its crypto business.
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Since most banks don’t process transfers on weekends, “it translates into pure inefficiency in the market,” said Dave Weisberger, CEO of CoinRoutes, which provides market data to help traders decide where to buy or sell. “We haven’t seen anything like this, frankly, in years.”
Over the weekend, the difference between the prices of Bitcoin on most exchanges was about 0.1%, about 10 times what it usually is, according to CoinRoutes data. By Wednesday, the spread was three times as much as before, but Weisberger said it could widen again this weekend with banks closed.
That price difference may seem small, but over time it adds up to a sort of shadow trading tax on investors. It is far greater than corresponding price deviations that regulators have tried to stamp out in the stock market, says Weisberger.
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For the trading platform powered by Gemini, the spread was even wider, with traders paying almost 2% more on average. At the height of the turbulence, a Bitcoin trader on Gemini paid more than $1,000 more for a Bitcoin than traders on other platforms, Weisberger says.
A Gemini spokesperson did not respond to a request for comment.
Traders can eventually find solutions. For example, the difference in Bitcoin’s price on different exchanges when you buy with Tether stablecoin – whose value is tied to the dollar and is not transferred with banks – hardly moved last weekend.
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Later this year, the Federal Reserve also plans to debut its own long-awaited 24-7 payments network, called FedNow, a service similar to what banks provided that could solve the problem of moving money on weekends.
“Crypto could also accelerate the adoption of FedNow as it is a way for investors to fund and pay out trades without having to leave cash or digital dollars on a trading platform,” TD Cowen analyst Jaret Seiberg wrote in a research note this week.
Until then, Bitcoin traders can only consider taking the weekend off.
Write to Joe Light at [email protected]
