Bitcoin dropped by over $500 in a matter of minutes this morning, but the reason was actually fairly predictable
Often price movements in bitcoin are explainable.
We see hundred point rallies and drops on seemingly no news and mostly out of nowhere.
However, there are times when large moves actually have some meat behind them, which was the case with the drop we saw early this morning.
For those of you that went to bed seeing bitcoin trading north of $12k, things felt pretty good.
(Source: https://bittrex.com/Market/Index?MarketName=USD-BTC)
They stopped feeling good though when you woke up to eat your breakfast and saw bitcoin trading down around $11,500.
A $500 point drop in a matter of minutes.
So, what happened?
It's pretty simple really.
We saw something that has happened very frequently with bitcoin ever since the CME Bitcoin Futures product went live.
It simply was filling the gap:
(Source: ~~~ embed:1292774149845262337/photo/1) twitter metadata:Y3J5cHRvX2Jsb2t8fGh0dHBzOi8vdHdpdHRlci5jb20vY3J5cHRvX2Jsb2svc3RhdHVzLzEyOTI3NzQxNDk4NDUyNjIzMzcvcGhvdG8vMSl8 ~~~
The CME Bitcoin Futures gap.
There was a gap on the CME Bitcoin Futures chart from about $11,600 to about $11,800.
These gaps happen because the Futures product closes each week while bitcoin continues to trade 24/7. This means that if bitcoin moves significantly in either direction from the time the futures product closed, a gap appears on the chart.
Then when the futures product opens, the price of bitcoin is pushed hard to fill the gaps on the chart.
Why do these matter?
They matter because they have a very high tendency to fill.
I don't have the data in front of me but I remember reading that something like 90% of all CME Bitcoin Futures gaps have been filled thus far.
Which means, any time you see one, there is a pretty decent chance it fills in the not too distant future.
Interestingly enough, the last major one close to where we are trading currently is quite a bit lower:
(Source: ~~~ embed:1292881389650550784/photo/1) twitter metadata:QjFUV0lafHxodHRwczovL3R3aXR0ZXIuY29tL0IxVFdJWi9zdGF0dXMvMTI5Mjg4MTM4OTY1MDU1MDc4NC9waG90by8xKXw= ~~~
The closest significant gap is down around $9,700.
Which means bitcoin would need to a drop down to $9,700 in order to fill that gap.
In all honesty I don't think that gap will be filled for a very long time, if ever.
Not all gaps fill and that is one that may not.
If it does though, it's probably a great spot to setup a buy order.
Stay informed my friends.
-Doc
Posted Using LeoFinance
Is there something to worry about?🤔
Nope, just a run of the mill CME Bitcoin Futures gap fill.
These futures sure have started to impact some of the volatility. I’m still not sure what to think about it. Do you bitcoin futures as a positive, or a negative? @jcornel
Overall I think they are a positive because it brings more participation. Without these regulated futures, there would be a lot less institutional money in the bitcoin markets and on the whole the more money participating in these markets, the better.
It's good to know that Bitcoin's since erased a lot of that $500 drop since, and that we filled all our Futures gaps before moving upwards. Hopefully, that $9,700 gap is part of that 10% that never gets filled, because falling that far down could be painful 🙃
Yep I agree. I would prefer if we didn't fill that gap, especially since my dry powder is running low at the moment.
Lol, same here. It could be ruinously painful for BTC to drop that far down. God knows how many x100 long contracts people are putting up on BitMEX. It'll be truly chaotic!
Unfortunately as I look at the chart setup right now, it looks like over the coming days we are likely to head lower vs. higher...
Aye, I've seen BTC reject $12,000 quite a few times now, and it's just about holding onto mid $11,000s. I'm hoping it won't drop too far down, at least 🤞
Hopefully I am wrong. Just about everything is up right now, but bitcoin is lagging. Not a great sign for continued momentum in the near term.
Agreed. Chainlink is the most obvious MVP in the past few days, even longer actually. Fingers crossed for BTC :-/
Yeah I didn't even notice BTC's price dropped that drastically within that period of time lol. BTC can still have it's very volatile moments and I think that'll continue into the next future.
Yea it dropped so fast and then recovered the drop so quickly you may not have noticed if you weren't checking the price often.
Thanks for this post! I actually made about $400 on that drop margin trading - then was wise enough to take my chips out before getting myself in trouble. Cheers!
Nicely done!
Thank you! :D