What is a CME Gap?
A Chicago Mercantile Exchange (CME) gap occurs when the price of Bitcoin sees a significant change after the CME closes for the weekend or holidays. Unlike typical cryptocurrency exchanges that operate 24/7, the CME’s set schedule leads to differences in Bitcoin’s market price, creating what is known as a gap.
Why Do CME Gaps Matter?
These gaps can be significant indicators for Bitcoin’s price movements. Traders often believe that before a sustained rally, these gaps need to be closed. For example, when Bitcoin crossed a price point of $58,000 while CME was closed, a gap was created at approximately $55,504. Once Bitcoin resumed trading, it quickly fell to address this gap, leading to a significant price correction.
The Ripple Effects of High Funding Rates
Before a new weekly trading period kicks off, Bitcoin’s futures market often experiences heightened funding rates. Rates soaring between 0.1% and 0.15% indicate an overcrowded market, creating a scenario where a price correction is not just probable; it’s expected. This influx of overleveraged long positions can lead to drastic sell-offs, as was seen just the other day.
Whales and Their Impact
When substantial amounts of Bitcoin are deposited into exchanges, like Gemini, it typically hints at a potential sell-off. Recently, there were large deposits observed, suggesting that whales—experts in the trading game—set up for a profit-taking spree, leading to a swift market downturn.
What Traders are Saying
In the aftermath of this price correction, industry experts indicate that these dips often create excellent buying opportunities. Scott Melker, a respected trader, noted that recent trends display quicker recoveries following declines, encouraging traders to remain hopeful for a bounce-back. “I have no idea what happens here, but recent history shows that dips have not lasted long,” he adds, reassuring those trying not to panic-sell.
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