Cloud Hosting

What the price of Bitcoin will do this weekend is anybodys guess, but heres one good bet: The past weeks tumult in banking will make it more costly to trade.

Since Silvergate Capital (ticker: SI) said it was winding down and Signature Bank (SBNY) failed, token prices on various trading platforms like Coinbase and Gemini have diverged widely. Traders have been paying hundreds of dollars, and sometimes more than $1,000, more for a single Bitcoin on one platform than on others.

The inefficiency in the crypto market appears to be at least in part the result of the debacles at the two banks. Each ran prominent payments networkscalled SEN and Signetthat allowed customers to send dollars to each other almost instantly at any time, seven days a week.

Thats important to crypto traders, who buy or sell tokens outside of banking hours and often need liquidity more quickly than the couple of days it can take to process a wire transfer. The ability to move money fast is also crucial 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 its operations, has shut down SEN. Signet is still operating, but some customers have stopped using it given its uncertain future. Reuters reported that government regulators have said any buyer of Signature Bank will have to abandon its crypto business.

Advertisement - Scroll to Continue

Since most banks dont 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 havent seen anything like this, frankly, for years.

Over the weekend, the difference between the prices of Bitcoin on most exchanges was about 0.1%, about 10 times as much as it usually is, according to CoinRoutes data. By Wednesday, the spread was three times as much as before, but Weisberger said it could increase again this weekend with banks closed.

That price difference might seem slight, but over time it adds up to a sort of shadow trading tax on investors. It is far greater than similar price discrepancies that regulators have tried to stamp out in the stock market, Weisberger says.

Advertisement - Scroll to Continue

For the trading platform run by Gemini, the dispersion was even wider, with traders paying nearly 2% more on average. At the height of the turbulence, a Bitcoin trader on Gemini was paying more than $1,000 more for a Bitcoin than traders on other platforms, Weisberger says.

A Gemini spokesperson didnt respond to a request for comment.

Traders could eventually find workarounds. For example, the difference in Bitcoins price on different exchanges when buying with the Tether stablecoinwhose value is pegged to the dollar and isnt transferred with bankshardly moved last weekend.

Advertisement - Scroll to Continue

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 the banks provided that could solve the problem of moving money on weekends.

Crypto could also speed adoption of FedNow as it is a way for investors to fund and cash out of trades without having to leave cash or digital dollars on a trading platform, wrote TD Cowen analyst Jaret Seiberg in a research note this week.

Until then, Bitcoin traders might just consider taking the weekend off.

Write to Joe Light at joe.light@barrons.com

Excerpt from:
Avoid Buying Bitcoin on Weekends Now. It Could Save You Some Money. - Barron's