On February 24, the Bitcoin price plunged from $4,190 to $3,714 within minutes by 11.3 percent against the U.S. dollar.
While many traders were not taken aback by the sudden drop in the price of the dominant cryptocurrency, some were surprised by the magnitude of it in a short time frame.
In an exclusive interview with CCN, cryptocurrency technical analyst and trader Josh Olszewicz suggested that the Chicago Mercantile Exchange (CME) Bitcoin futures market may have had a large impact on the downside movement of the asset.
Last week, prior to the fall in the price of Bitcoin and the $11 billion wipeout in the crypto market, CME revealed that it saw a record high daily volume of BTC futures contracts.
On February 19, CME cleared 18,000 BTC contracts, up nearly two-fold from its previous record high at just over 10,000.
Speaking to CCN, Olszewicz stated that the sudden spike in the daily volume of BTC contracts on CME could have triggered the build-up of sell pressure on the asset, leading BTC to record a large downside movement.
The opening and expiration dates of the Chicago Mercantile Exchange (CME) BTC futures contracts can have a significant impact on price. The CME facilitates the trading of the largest portion of derivatives contracts in the world.
The CME BTC futures contracts first opened in December 2017 on low volume, but volumes for the product have increased significantly throughout 2018. Last week, CME saw the highest volume ever in a single day for the BTC futures product.
Every two-month BTC futures contracts on CME have demonstrated a decline in the price of BTC since the launch of the CME BTC futures market.
In consideration of the trend of the BTC futures market since early 2018, the analyst said that it could have fueled the retracement of the asset, adding “I think that had a big impact personally.”
Although some believe that the impact of CME on the price of BTC is limited because the contracts on CME are cash-settled, it remains as the biggest BTC futures market.
Economist and markets analyst Alex Krüger said that the short-term drop in the valuation of the crypto market was a simple stops run.
As CCN reported, since early February, the price of Ethereum increased by 60 percent and without a pullback, ETH rose by 38 percent.
Following a strong short-term rally, the cryptocurrency market was due for a pullback. Bitcoin also reached its first strong resistance level at $4,200, after breaking out of $4,000.
It took BTC months to cleanly break out of the $4,000 level and a similar trend could occur for higher resistance levels in the $4,000 to $5,000 range.
“It is a simple stops run. Prices had just gone up vertically for 16 days without a pullback. Take $ETH for example: +38% without a pullback. Lots of levered longs piled up. And people FOMOed in. BTC reached the first level strong resistance ($4200) and a correction ensued,” Krüger told CCN.
As it is with any other asset class or market, the analyst emphasized that a prolonged bullish movement is often met with a large pullback. “It is simple gravity,” he said.
In the last 24 hours, leading crypto assets in the likes of Bitcoin, Ethereum, Ripple, EOS, Litecoin, and Bitcoin Cash recorded losses in the range of 10 to 20 percent, with EOS recording an 18 percent loss.
Bitcoin has slightly recovered by around 1 percent since its steep drop below the $3,800 mark. In the near-term, several analysts expect the market to demonstrate stability in the current range.
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Last modified: February 25, 2019 6:02 AM UTC