The financial world is full of “reasons” as to why assets move towards certain price targets. Some reasons make more sense than others, but filling ‘gaps’ on charts is one of the most vague. However is this a possible reason why bitcoin (BTC) could drop much further than you might expect.
Vgaps in the BTC rate
You don’t see these ‘gaps’ in the chart on the regular chart of bitcoin (and other cryptocurrencies), but on that of the corresponding futurescontracts†They are not traded on weekends. This means that the price had already risen or fallen sharply before the opening of the stock market, creating a gap.
If there is a gap, it means that people did not expect that the closing price could have been elsewhere. Then they are misplaced and they make a loss. Later, as the price gets closer to the gap, it gets closer to the point where these parties bought. The rule teaches that the more recent a gap is, the more likely it is to be filled. Yet history shows that they often fill up quickly.
Many gaps on bitcoin CME futures
The bitcoin futures offered by Chicago Mercantile Exchange (CME) currently have four gaps below the price. Then we are talking about the chart with the daily candlesticks. The first is currently only a mere 10% of the price. The fourth is about 70% lower, just below USD 10,000.
Bitcoin futures from CME, data sourced from TradingView.
next to four gap downs are there also two gap ups that are above the current price and still need to be filled. So it may freeze and thaw, but the price is currently eerily close to breaking out. That may not bode well for Bitcoin, nor for other cryptocurrencies.
Whether it’s an OCD trait of institutions or whether filling these holes (wherever possible) is just some sort of unwritten rule will presumably remain a mystery.