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Do Asian Markets have outsized influence on Bitcoin’s Gains?

  • Data suggests that there are large intraday swings for Bitcoin, falling at the close of New York trading hours and rising at the open, with a simple possible strategy to buy in U.S. and sell in Asia. 
  • Strategy to buy in U.S. close and sell at Asia open may still work given the divergence in monetary policy from the U.S. and Asia, in particular Japan and China.

Part of the allure for Bitcoin traders has been that being decentralized, it’s a market that never sleeps.

But given the steep declines in the benchmark cryptocurrency of late, it’s easy to imagine that most investors would want Bitcoin to sleep at some point in time, especially given the sharp declines regardless of time zone.

Observant traders however have noticed that Bitcoin does tend to do better while Wall Street sleeps, notching gains in Asian markets and having some cook up a hypothetical strategy of buying in U.S. hours and selling in Asian hours to a rising market.

According to Bespoke Investment Group, a plucky trader could buy Bitcoin at the New York market close at around 4 p.m. Eastern Time and selling at the next day’s open, 9.30 a.m. ET, which would yield gains of roughly 260% per annum, going back to the start of 2020.

Doing it the other way, buying at the U.S. open and selling it at the close sees just a 3.6% gain, according to Bespoke Investment Group and plying the trade over the weekends, when volumes are even thinner delivers even better returns.

One theory is that as traders have to close out on stocks, the availability of the 24-hour casino that is Bitcoin draws more degen traders into the fray, whereas another theory posits that crypto traders are forced to process loads of information overnight, which results in large price swings.

Another possible reason for the time zone variance could also be monetary policy – while the U.S. and Europe are seeing central banks tighten, inflation in Japan and China is moderate and both are nursing more accommodative policy stances.

Whereas risk-off may be the order of business in the U.S. and Europe, risk-on might still be at play in Asia and that could be leading to the Asian premium.

Investors will recall that in 2015, China had been a focal point for Bitcoin trading and was also the birthplace of industrial-scale mining operations and where most of the trading volume originated.

Chinese cultural attitudes towards riskier investments differs dramatically from American and European sensibilities, especially given the newfound fortune of most Chinese as opposed to the multi-generational wealth more prevalent in U.S. and European societies.

The other key could also be leverage – with offshore (non-U.S. and non-E.U.) trading venues offering copious amounts that goose up bets and lead to large price swings in either direction.

But how does that work in a bear market?

Probably not very well, especially when sentiment is bearish, and the market gets extremely volatile.

As Bitcoin has grown in institutional interest and acceptance, with asset management giants like Fidelity even offering it for 401(k) accounts, the general risk-off sentiment has seen large scale selloffs in U.S. trading hours, as institutional investors de-risk.

But that hasn’t translated into a large take up in Asian trading hours, as Asian investors struggle with their own basket of problems, not least of which is the prospect that China could either grow a lot more slowly, or even shrink, in the wake of its disastrous Covid-19 lockdowns that appear to have no end in sight.

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