On November 2, the price of Bitcoin (BTC) fell sharply by 2% in less than an hour, which caught traders by surprise. Coincidentally, a new gap appeared on the Chicago Mercantile Exchange (CME) Bitcoin futures market when it opened, making $13,100 an area of concern for sellers.
Technically speaking, there are three reasons that may have caused a sudden drop in the price of Bitcoin: CME gap, major resistance and monthly moving average (MA).
There are currently four gaps in CME Bitcoin futures
The CME Bitcoin futures market is closed on weekends and holidays. This means that if Bitcoin prices fluctuate sharply when the market is closed, there will be a gap between CME and cryptocurrency exchanges.
Although there is no comprehensive theory to explain why traders fill the CME futures gap, historically, most CME Bitcoin gaps have been filled.
Since October, Bitcoin has seen a strong rebound. During the weekend, Bitcoin’s trading volume has declined due to the decline in market activity. But in the past few months, Bitcoin’s market activity has been rising, while trading volume has not declined.
Therefore, this resulted in the formation of four consecutive CME gaps. The weekly line of the past month has led to a new CME gap, which is rare for Bitcoin. This means that even on weekends, the price of Bitcoin has risen and fallen so fast that a new continuous gap has been formed.
CME Bitcoin gap on the price chart Source: Zack Voell, TradingView.com
The gaps are 13100 US dollars, 12970 US dollars, 11505 US dollars and 11100 US dollars. These areas can be regarded as the price points that sellers pay attention to. Coincidentally, for the moving average, the range between $12,970 and $13,100 is an important area.
The next short-term Bitcoin monthly moving average is below $12,500
On Bitcoin’s monthly chart, the next short-term moving average is the 5-day moving average at a price of $12,203. Throughout history, even during the bull market, at least one short-term moving average on the monthly chart will continue to rebound after being broken down.
Since the beginning of October, Bitcoin has risen rapidly from $11,775 to $13,500, an increase of more than 25%. The rapid rise means that Bitcoin cannot establish a clear support level on a higher time frame chart.
In the past two months, Bitcoin has repeated an upward pattern, followed by a brief consolidation. On the daily chart, this creates clear support and resistance levels, which are sustainable compared to previous gains.
Bitcoin price monthly chart Source: TradingView.com
However, on the weekly and monthly charts, Bitcoin is still far from reaching a significant short-term moving average. The closest moving average is the 5-day moving average, which is about $12,200.
Bitcoin fell below major resistance levels
On October 31, Bitcoin tested a resistance level of $14,000, which was the first time since December 2017. After such a sharp rise and a critical retest, the market is expected to see a sharp correction.
Some traders said they were surprised by the magnitude of the Bitcoin price drop. But when they saw that the open positions in the futures market were high, they said it was more reasonable.
An anonymous trader CL said: “Sometimes I am really surprised by market volatility.” Afterwards, CL added that the open positions have been high enough to justify the move.
