Bull Trap Fears Engulf Bitcoin Market As BTC Paints CME Gap Below $ 40K

A breakthrough to $ 40,000 in the Bitcoin (BTC) market was at risk of exhaustion when futures on the Chicago Mercantile Exchange opened Monday with a gap of $ 1,575, the first since May 17.

In hindsight, downside risks increased due to Bitcoin’s recent bearish pullbacks near the $ 40,000 level. On top of that, said CME gap formed between Friday’s close of $ 37,325 and Monday’s open of $ 38,900, increasing the chances that the next correction will cause Bitcoin bids to drop to at least $ 37,325.

That’s due to a general psychological notion among traders that BTC / USD reverses its trends to fill Bitcoin futures gaps more than 90% of all time. So, for example, traders partially filled a gap that appeared during the April 17-18 weekend session 11 days later.

Similarly, in May 2020, the weekend candle that was missing between $ 8,795 and $ 10,010 was filled immediately after its formation.

Purple lines show CME Bitcoin Futures gaps filled, black lines show unfilled gaps. Source: TradingView

But throughout 2020 and into 2021, the supersonic uptrend of the Bitcoin market left many missing price candles unfilled. The last of these large gaps appeared during the long Christmas weekend last year, around $ 2,900, between $ 23,745 and $ 26,650, which remains unfilled to date. Similarly, another unfilled CME gap between $ 18,020 and $ 19,155 dates back to early December 2020.

The maximum time traders have taken to fill a CME gap is three months – the missing price candle in focus appeared in June 2019 and was filled in September 2019.

It took Bitcoin futures traders three months to fill the July 2019 CME gap. Source: TradingView

Fundamentals

Macroeconomic fundamentals played a huge role between June and September 2019 in keeping Bitcoin prices away from their lowest CME gaps. First of all, many investors bought Bitcoin as their safe haven asset, as the US-China trade war weighed on global growth and market sentiment.

Second, Facebook’s foray into the crypto sector with the launch of Libra created more bullish opportunities for Bitcoin.

In 2020, the open expansionary policy of the Federal Reserve served as a bullish endorsement for Bitcoin. The US central bank cut its benchmark interest rates to almost zero following the global market crash of March 2020.

At the same time, the Fed began buying government bonds and mortgage-backed securities at a rate of $ 120 billion per month. That sapped investors’ appetite for U.S. dollar and Treasury yields and increased the appeal of Bitcoin, gold, and stocks as alternative safe havens.

Veteran investors, including Stanley Druckenmiller and Paul Tudor Jones, announced their exposure to the Bitcoin markets in the wake of the Fed’s expansive moves. Meanwhile, Tesla, MicroStrategy, Square, Ruffer, Seetee, and other corporate firms also added Bitcoin to their balance sheets. , citing inflation fears.

Somehow that prevented traders from filling the gaps of $ 23,745-26,650 and $ 18,020-19,155 CME even five months after their formation.

Meanwhile, a Twitter market analyst, known by his Planet-of-the-Apes pseudonym xCaeser, suggested that traders view $ 34,000 as a cutoff level to determine the next market bias. In a tweet posted after the May 19 price drop, xCaeser indicated that having $ 34,000 as support would increase the potential for Bitcoin to rally towards $ 47,000. He added:

“If $ 34k breaks, $ 23,300 will be sought and ultimately CME will complete”

Bitcoin has broken below $ 34,000 several times since May 19, but the cryptocurrency rallied enormously after testing the $ 30,000 to $ 32,000 area as its support after each of its bearish moves.

A bullish gap ahead

After reaching almost $ 65,000 in mid-April, Bitcoin prices declined due to profit-taking sentiment, leaving a CME gap between $ 49,215 and $ 45,295. The missing price candle remains empty to date.

That put Bitcoin in a conflicting technical setup, meaning Bitcoin could correct lower after approaching the $ 40,000 resistance level and fill the $ 37,325- $ 38,900 CME gap, or it could continue to rise to fill the $ gap. 45,295- $ 49,215 CME.

The exchange data obtained from on-chain analytics platform CryptoQuant further showed a bias conflict in the Bitcoin market. In hindsight, both the inflow and outflow of BTC from exchanges declined in recent sessions. Meanwhile, the number of inbound addresses declined while outbound addresses fell to a one-year low.

Additionally, Elon Musk announced that Tesla would resume the Bitcoin payment option once “there is confirmation of reasonable use of clean energy (~ 50%) by miners.” The billionaire businessman was reacting to comments from Sygnia CEO Magda Wierzycka, calling him a market manipulator.

Related: Sygnia CEO Criticizes Elon Musk for Alleged Bitcoin Bomb and Dump

“Bitcoin prices have maintained good growth following Musk’s comment,” said Yuriy Mazur, head of the data analysis department at CEX.IO Broker, adding that it increases the cryptocurrency’s potential to fill the gap of $ 45,295. -49,215 CME. He told Cointelegraph:

“Currently it appears that prices are retreating from their highest levels in the last 24 hours, a surprising rally could be triggered if buyers influenced by Musk decide to wake up the market.”

Musk’s tweets were instrumental in dropping Bitcoin prices from $ 43,500 to $ 30,000 on March 19. His company Tesla still has around $ 1.3 billion in BTC as a cash alternative.