Market Sense and Nonsense
In this article I will highlight several findings that have helped our firm establish an edge over the market, especially when it comes to margin trading Bitcoin and BTC futures.
I’ll cover the differences between various bitcoin charts, explain weekend price action, cover gap fills, and highlight BTC’s current standing on what we believe is the most valid chart.
Whether you’re new to Cryptocurrencies or a veteran choosing the right BTCUSD chart to trade on is a conundrum of itself. Several index charts have been developed to cultivate a true real time price, yet their reliability is questionable.
Bitfinex has been trading at a premium from almost a year now. BitMEX - Bitcoin Mercantile Exchange is said to be a manipulator, and a market maker with their own liquidation engine. The Coinbase chart is somewhat reliable for historical data, yet the exchange lacks volume, and their trading fees are non-conducive to a true trading environment.
Which brings us to the CME, Chicago Mercantile Exchange chart. BTC1! on TradingView.
The above chart has Bitmex’s XBTUSD perpetual swap chart, with an overlay of CME’s BTC1! chart in yellow. Think of CME’s BTC1! as the Bitmex’s XBTUSD chart but where regulated banks and hedge funds trade leveraged bitcoin futures.
It’s no secret that the introduction of CME’s Bitcoin futures have a great contribution to Bitcoin’s reversal and the 2018–2019 bear market. So why not weigh this chart more than all of the others?
For the last few month’s at Coin Observatory that’s exactly what we’ve been doing, and our accuracy has been second to none.
Weekend Price Action:
The above chart has several red circles highlighting price movement over the weekend on all exchanges, except CME. That’s because CME halts trading all Bitcoin contracts on Friday, 5pm CST and resumes on Sunday at 4pm CST.
If Big Banks, sophisticated trading desks, and true market makers are leveraged via futures contracts, what are the odds that they will allow their positions to get liquidated?
Hypothetically, the odds of true market makers getting liquidated in their own trading environment is close to zero. Weekend price action has always retraced to the previous CME Friday 5pm close. And I will explain how and why.
Sophisticated trading desks utilise both futures and spot positions to best situate themselves. Ideally, they would long Bitcoin on a spot market, owning actual bitcoin, then utilise futures contracts to hedge against that position. This practice is referred to as hedging, hence the term “Hedge Fund”.
So in theory, if a hedge fund was net-short via leveraged futures contract on Friday 5pm cst, and their market closes for 47 hours. Then over the course of the weekend, Bitcoin gains a +4% and puts their short position at a risk of liquidation, it is in their best interest to flash sell Bitcoin on spot exchanges to bring price back down, so when their Futures market resumes trading, they’re not at a net loss.
The opposite holds true as well, if Bitcoin loses value between Friday 5pm CST and Sunday 4pm CST, it is likely to rally back up before Sunday’s CME open, to prevent CME contract holders from liquidation.
If you thought our weekend price action theory needed a tin foil hat, here’s more juice!
CME gap fills on the above chart show certainty in terms of where price is headed. If price didn’t head back to CME close before Sunday’s open, then you can bet it’s going to retrace to fill the gap in the near future, as it has done so on most instances. Over 98% of instances. As a matter of fact, we’ve only seen one gap that hasn’t filled. Unfortunately it is below current price action. But in theory only one type of gap doesn’t fill. And that’s a “Breakaway Gap”.
Current unfilled gap is at $3,577, highlighted on the chart below.
At this point, before you continue reading, I encourage you to share this article, and give us a couple of claps.
Heading and Direction:
If our case is made in determining that the most reliable BTCUSD chart, then what can we expect from that chart in terms of technical analysis?
BTC1! is currently demonstrating an Inverse Head and Shoulders, a Descending Broadening Wedge that has retested, and an influx of volume. Two cascading bullish formations, but why haven’t we rallied?
Well as of today, it’s Sunday and CME isn’t trading, so had Bitcoin rallied over the weekend, we’d likely see a flash dump back to CME’s Friday close. As for the wedge and neckline re-test, it was our last Buy The Dip signal on Monday March 25th.
Current standing on most time frames is bullish. Except for Bitcoin’s 2 day chart. Below we can observe friction with the long term trend line, along with RSI resistance.
At some point, resistances are meant to be broken. Yet if current resistance does not break and Bitcoin experiences a failure to rally, then we can expect a move down to fill the $3577 gap for a pre-flight check. If BTC does break the current resistance, then $3577 was a breakaway gap and an early symptom of a reversal.
When Senior CME figure, Leo Melamed said “we will tame Bitcoin” he was right. They did so, but they also gave us at www.CoinObservatory.com an edge over the market.
Another market edge theory that we’re not willing to disclose at the moment, has our bullish Bitcoin target at $4,700. More importantly 4pm CST today and this coming week could mark new beginnings for the Cryptocurrency market.