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What happened

In the world of cryptocurrencies, which happens to be a 24/7 market, weekend price action can be rather enthralling to watch. With most markets off-limits to investors, traders who require action can find it in the crypto market.

Thus far, this weekend has kicked off with an unfortunate thud for investors, with most major tokens losing steam. Over the past 24 hours,Bitcoin(BTC -0.55%), Ethereum(ETH -0.11%), and Dogecoin(DOGE 0.02%) have sunk 3.3%, 5.7% and 12.4%, respectively.

This past week provided investors with more headwinds than we've seen in some time. The Securities and Exchange Commission (SEC) launched two lawsuitsagainst Binance and Coinbase, two of the largest centralized crypto exchanges.

The allegations varied across these two enforcement actions, with market manipulation the key focus of the Binance lawsuit and alleged unauthorized securities sales the key focus of the Coinbase suit.

While Bitcoin and Ethereum appear to be in the clear, with most regulators appearing to lean toward these digital assets being classified as commodities rather than securities, it's clear that regulatory oversight for the crypto sector is likely to pick up substantially. With the largest crypto exchanges in the cross-hairs of regulators, investors have reason to be concerned about how regulation may affect capital flows into this sector, and overall innovation, over time.

For meme tokens like Dogecoin, regulatory headwinds are certainly a bigger deal. It's much more likely we'll see regulators focus their enforcement action efforts on projects with little utility or value for users and generate impressive profits for insiders, like Dogecoin and many of its peers. Thus, it's unsurprising to see this token drop much more precipitously than its mega-cap peers today.

This past week, I read an interesting perspective on why equity markets aren't open on weekends. Thin liquidity can result in outsized moves (to the upside or downside), often seen in after-hours trading volatility around key events such as earnings. In the case of crypto, a 24/7 market, weekends can prove to be much more volatile, which can incite traders to take on leveraged positions and ride momentum one way or another.

Perhaps today's price action is simply the result of a combination of thin liquidity, liquidations activity, leverage, and momentum. That's almost certainly the case with most major rallies in this sector.

However, there's also the reality that the crypto market effectively didn't blink when these SEC lawsuits were announced. Bitcoin and Ethereum saw an initial dip but held relatively steady. Today, investors appear to be seizing the opportunity to price in this real risk.

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

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