Fuel for a broader Bitcoin rally? BTC dip fills futures gap, liquidating $1 billion


A major Bitcoin (BTC) futures gap on the Chicago Mercantile Exchange (CME) closed when BTC / USD suddenly fell below $ 54,000 on February 22nd.

A CME gap occurs when the price of Bitcoin either rises or falls after the CME closes on weekends or bank holidays in the United States

Unlike most cryptocurrency exchanges, a gap forms between CME and many Bitcoin trading platforms as the CME Bitcoin futures exchange is not always open.

BTC / USDT 4-hour price chart (Binance). Source: TradingView.com

Why is the CME Bitcoin Gap Significant?

The CME gap is sometimes viewed as an important gap that needs to be closed in order for the Bitcoin rally to continue in the short term.

For example, the most recent gap arose when the price of bitcoin exceeded $ 58,000 on major cryptocurrency exchanges while CME’s bitcoin futures market was closed for two days.

As such, a gap opened at $ 55,504, which closed when the price of Bitcoin fell sharply after the new weekly candle opened.

#Bitcoin CME gap finally closed. https://t.co/JygwzJwClk pic.twitter.com/XYkPgKuBjp

– Fomocap stores (@Workedia) February 22, 2021

Bitcoin tends to correct sharply shortly after a new weekly candle is opened. This flushes out overfunded longs and brings some balance to the market.

Before the weekly opening of the candle, the refinancing rate of the Bitcoin futures market was between 0.1% and 0.15%. This is 10 to 15 times higher than the standard funding rate of 0.01%.

Although Bitcoin’s funding rate has remained relatively high throughout the bull cycle, a funding rate of 0.15% indicates that the market is extremely crowded.

The combination of a high rate of funding for Bitcoin futures, the presence of a CME gap, and the deposit of whales on major U.S. exchanges likely fueled the decline.

Large deposits discovered on twins

Before the pullback, CryptoQuant found that large BTC deposits were being transferred to Gemini, one of the leading US cryptocurrency exchanges.

Before the slump, there were significant inflows of BTC into all exchanges, mostly Gemini.

Diagram https://t.co/6gPk3Qbg6j pic.twitter.com/j1wDNtqNak

– CryptoQuant.com (@cryptoquant_com) February 22, 2021

When whales deposit BTC on exchanges, it usually signals an intention to sell. Hence, it is likely that some whales have taken profits from their positions, causing the market to decline sharply in a short period of time.

However, whales selling large amounts of Bitcoin can cause a bigger correction than usual as it leads to cascading liquidations in the futures market.

Many overfunded longs can be liquidated one at a time, amplifying the effect of the whale sell-off. Data shows that futures contracts valued at over $ 1 billion have liquidated in the past 24 hours.

After the decline, traders expect a gradual recovery. Scott Melker, a cryptocurrency trader and technical analyst, said recent history suggests that dips don’t last long. He wrote:

“I have no idea what’s going on here, but recent history shows the slump didn’t last long. I’d love to see another slow rebound after this sale. Of course we could fall, but any move like this has been lately an opportunity to buy. “