Filling CME BTC Gaps

You’ll hear reports of “Bitcoin filling a CME gap” in the news from time to time; what does this mean, and how important is “gap-filling” to begin with? 

First off, the CME or Chicago Mercantile Exchange operates the largest futures/derivative exchange in the world. Unlike Bitcoin and cryptos in general, they do not operate over the weekend. They are closed on Friday night and do not re-open until 1800ET Sunday night, where the exchange then stays open until the subsequent Friday night. 

But Bitcoin spot trades all weekend, and frequently sees moves in price during this time window…thus, the “gap” is born. 

A “Gap” is created when Bitcoin spot moves over the weekend and the CME Futures have to pick up trading on Sunday night at a much different price point than when they stopped trading on Friday night. 

You can see these major “gaps” in the price chart below, signified as white boxes. All three of these were “upside” gaps created over the weekend with price literally “gapping higher” to a new opening price on Sunday evening. 

You can also see that these major gaps were “closed” eventually, such as the mid-January gap being “closed” by the price re-testing the January breakout above $20k. (there are other minor gaps on this chart as well, but they were closed very quickly) And there was a minor gap at $28,000 that was closed on Thursday of this past week. 

Now what about that big breakout gap at $20,000 from March 13? Does the price need to “close” that gap as well? 

To answer this question, now that we understand what gaps are, we next need to understand WHY gaps get closed. I have dealt with this question for years in the equities market, and we’re seeing the same thing happening with crypto markets. 

Does a gap represent something intolerable to the mechanics of a functioning financial market? Does a gap “break” a market to prevent it from functioning? No to both. All a gap represents is a supply/demand imbalance during that period of time which caused the price to move.  

But why do markets bother to close gaps? 

Perhaps the reason why is that they become a target that everyone can see. Imagine if you were walking in the middle of the Sahara desert. You’d be looking for something…ANYTHING…that might represent water or oasis. You notice a single red flag poking out of the sand in the distance…what will you do? Why, you will walk straight to that flag, of course. 

And the same thing happens with gaps. They represent a “target,” nothing more or less. And for that same reason, they do NOT all have to be filled. 

So does that big breakaway gap down at 20K represent a gap that must be filled? Perhaps, but not before we get to see how the support at $25k acts.