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Bitcoin’s Recent Sell-Off: What’s Behind the Drop and What’s Next?
Bitcoin (BTC) has dropped 10% to $86,300 this week, diving out of a prolonged period of trading between $90,000 and $110,000.
The so-called bearish range breakdown has traders closely examining charts for clues about where the sell-off may drive prices next. One of the key levels under scrutiny is the “runaway gap” in CME bitcoin futures below $80,000, which formed three months ago.
What is a Runaway Gap?
A gap is a blank space on a price chart between the closing or high price on a specific day and the next opening price, signifying that there was no trading activity at prices in between. When the gap appears in an established trend, it’s called a runaway or continuation gap.
How Does it Relate to Bitcoin’s Current Price?
Unlike bitcoin’s spot market, which is open 24/7, CME bitcoin futures trade 23 hours a day, Sunday through Friday. The market opens at 5 p.m. CT (23:00 UTC) and closes for an hour’s maintenance the next day at 4 p.m.
As the bitcoin rally picked up steam following President Donald Trump’s Nov. 4 election victory, a runaway gap appeared in the CME futures on the following day. Prices opened the next day at $81,210, significantly above the election-day high of $77,930.
Will the Gap be Filled?
It’s widely held that price gaps are eventually filled, with traders buying and selling the asset in the previously non-traded zone. The process is often seen as a natural market behavior, reflecting a return to equilibrium.
“Historically, CME gaps are filled eventually, and it is usually hard to say when,” Nicolai Sondergaard, a research analyst at Nansen, said in a Telegram message. “The recent unexpected events are the larger reasons for why we have seen these big downwards movements and without them I think we wouldn’t really be looking at the CME gap.”
The risk indicators at Nansen have recently “gone risk-off,” so it wouldn’t be surprising if the CME gap is filled, Sondergaard said.
Technical Analysis Theory
Technical analysis theory suggests otherwise. It says that common gaps, which often occur during regular trading, and exhaustion gaps, which appear during trend reversals, are typically filled quickly. In contrast, the likelihood of runaway gaps being filled is relatively low.
Uncertainty Remains
It’s worth noting that a gap has formed between Feb. 24 and Feb. 25 as prices dropped out of the prolonged consolidation. Which of these gaps will be filled first remains uncertain.
Conclusion
In conclusion, the recent sell-off in Bitcoin has left traders scrambling to identify the next level of support and potential resistance. The runaway gap in CME bitcoin futures is one of the key levels under scrutiny, with some analysts predicting that it will be filled. However, technical analysis theory suggests that the likelihood of this happening is relatively low. As the market continues to evolve, it’s clear that the next level of support will be critical in determining the direction of prices.
FAQs
Q: What is a runaway gap?
A: A runaway gap is a gap that appears in an established trend, signifying that there was no trading activity at prices in between.
Q: Why is the CME gap significant?
A: The CME gap is significant because it formed three months ago, and its fill could have a significant impact on the direction of prices.
Q: Will the gap be filled?
A: It’s widely held that price gaps are eventually filled, but technical analysis theory suggests that the likelihood of runaway gaps being filled is relatively low.
Q: What is the current price of Bitcoin?
A: The current price of Bitcoin is $86,300.
Q: What is the next level of support?
A: The next level of support is the $80,000 mark, which is below the current price of $86,300.
