CME Gaps and Bitcoin: How Often Do They Fill? The Saylor Danger
Trading in Bitcoin may be one of the most challenging ways to invest in the markets. That’s because the BItcoin markets never close and its volatility can lead to double-digit gains or losses within 24 hours. For those who trade Bitcoin, the difference in the cryptocurrency’s sports price and the price of BItcoin futures of the CME can present an opportunity. Here’s a look at CME gaps and Bitcoin.
What Is the CME?
The CME is the Chicago Mercantile Exchange. This exchange deals with future contracts trading on commodities such as gold, wheat, and soybeans. Recently, the CME has added Bitcoin as a tradable commodity. That means investors can buy or sell futures contracts that are tied to the price of Bitcoin. While institutional investors mainly trade futures contracts in Bitcoin, retail investors can find an opportunity in what is known as the CME gap.
What Is the CME Gap?
The CME gap is the difference between the price of Bitcoin (BTC) on exchanges and its closing price on the CME exchange. If the price of BTC is higher on the exchanges than the closing price on the CME, then the spot price of BTC will usually decrease. Conversely, if the price of BTC is lower than the closing price on the CME exchange, then the price of BTC will likely rise.
How Often Does the CME Gap Fill On Bitcoin?
It is estimated that gaps fill over 90% of the time. As an example, let’s say that the closing CME price on BTC is $31,500 and the spot price of BTC on exchanges is $32,000, then there is a 90% chance that the price of BTC on the exchanges will fall $500.
Naturally, the larger the gap, the harder it will be to fill. While the 90% fill average is rather higher, the chances of BTC filling the gap to meet the CME closing price will be much higher if the difference between both markets is smaller.
BUYER BEWARE
I am making this point as a person who first learned about Bitcoin in 2013 this is not FUD but based on past performance a near certainty. Bitcoin currently has CME gaps @ 24.5 K and 18.2K. MicroStrategy has about 129,000 bitcoin at an average price of ~$30,700. For context that means at a Bitcoin price of $30,698 MicroStrategy is under water $258K. That means based on the past behavior of Bitcoin if we have over 90% chance we hit a price of $18.2K. At that point MicroStrategy will be down ~$12,500 per Bitcoin multiplied by their 129K bitcoin they will be underwater $1,625,000,000 on their bitcoin position. This is an incredible sum and if you think MicroStrategy won’t have to sell their Bitcoin at some point you are kidding yourselves. MicroStrategy is a software company not an investing firm they really have no business making this kind of gamble and if this event that historically has over a 90% chance of happening occurs and Saylor won’t sell Saylor will likely be removed as CEO and will be replaced by a CEO who is less Bitcoin friendly. If Steve Jobs can be removed from Apple Saylor can be removed from MicroStrategy. MicroStrategy is responsible for an estimated ~20% of the demand for new Bitcoin. What happens when he goes from a buyer to a seller? You are free to do what you want, but keep in mind that the same logic applies to Tesla’s Bitcoin position as well as El Salvador’s position as well.
Understanding Bitcoin and the CME Gap
Trading the CME gap can provide you with an excellent opportunity to profit from the discrepancies between the price of BTC on the CME and cryptocurrency exchanges. Be sure to understand the risks of trading in cryptocurrencies before making any investment decision.
REFERENCE:
https://www.numbrs.com/how-to-trade-the-cme-gap-for-bitcoin-futures/
