Behind the market’s “overnight painting”: Who is directing this long and short game?

The filling of the CME gap has completed the technical self-correction, but the real test of the market has just begun.

In the early morning of March 4, the “scary night” in the crypto market made investors deeply realize the cruelty of the crypto market. Markets showed that BTC fell rapidly from its weekend high, falling below US$86000, a 24-hour decline of 4.39%;ETH fell below US$2200, a drop of more than 6%. This plunge not only made up for the US$77000 gap in CME Bitcoin futures, but also tore open the deep contradiction under the appearance of market prosperity-when favorable policies, technical rules and capital games are intertwined, who is controlling the direction of the market?.

Up The illusion of prosperity: March 2 ‘s “paper bull market”

Looking back on March 2, when Trump announced the inclusion of XRP, SOL, and ADA in the U.S. strategic reserve, the scene of Bitcoin soaring by $10000 in three hours seems like a lifetime ago. However, on-chain data reveals the nature of this carnival: it is a “castle in the air” driven by futures leverage.

• The spot market is false: Although major exchanges recorded a net inflow of 13,000 BTC, Binance spot trading volume was only 65,000 BTC (approximately US$5.97 billion), far lower than the 104,000 BTC (US$7.7 billion) at the same level of increase in November last year. What really drives prices is the surge in futures positions in CME and Bybit-the total open interest exceeded US$53.8 billion, of which US$14.3 billion was concentrated in CME.
• The “reverse signal” of stablecoins: USDT and USDC chain reserves decreased by US$580 million in 24 hours, and the stablecoin/BTC trading ratio soared to 67%. This may seem to be an influx of funds into the crypto market, but in fact it is a “beating of the drum” of existing funds catalyzed by leverage.
• Precise harvesting of giant whales: Addresses holding 1000+BTC increased their holdings by 42,000 BTC during the surge, but three of them were transferred to more than 10,000 BTC in a single transaction. The trajectory on the chain shows that most of these chips come from cold wallet activation, implying that the “smart money” that has been laid out for good use and shipment.

This surge, which lacks real financial support, has already laid the foundation for a subsequent plunge.

Macroeconomic recession hangs over the market

Currently, the global macroeconomic situation has exerted significant pressure on the cryptocurrency market. Taking the United States as an example, the Atlanta Fed’s GDPNow model predicts that by the end of the first quarter of 2025, U.S. GDP will contract by 2.8%, a catastrophic reversal from the 3.9% growth forecast four weeks ago. This kind of recession expectation has made investors more cautious about risky assets, and cryptocurrencies, as high-risk assets, naturally bear the brunt.

Since the approval of the spot Bitcoin ETF, cryptocurrencies have become increasingly connected to traditional financial markets. During the boom, this integration may attract more money into the crypto market; but in the expectation of a recession, its drawbacks are fully exposed. Once the U.S. economy falls into a trough, turmoil in traditional markets will quickly be transmitted to the crypto market, weakening investor confidence. The sharp fluctuations in Bitcoin prices over the past few days are a reflection of this trend-although there was a brief increase over the weekend, the increase was quickly completely erased, as evidenced by the sluggish market sentiment.

Trade war: Tariff policy breaks illusions

The escalation of the trade war has further exacerbated market uncertainty. U.S. President Trump recently announced additional tariffs on Mexico and Canada, and made it clear that “there is no room for negotiation.” Since then, he announced on Truth Social that he will implement a “reciprocal tariff” policy for the European Union, Japan, South Korea, etc. starting from April 2, that is, reciprocal measures will be determined based on the tariff levels of various countries against the United States. This tough attitude exceeded market expectations. Previously, many people believed that Trump’s tariff policy might be just a bargaining chip and had certain flexibility. However, the latest statement shows that the tariff war has begun in full swing and the market has to face this reality.

The increase in tariffs will push up the prices of imported goods, which in turn will aggravate inflationary pressures in the United States. In a high-inflation environment, the space for the Federal Reserve to cut interest rates is compressed, and high interest rates may last longer. This not only increases the risk of economic recession, but also suppresses the cryptocurrency market, which relies on liquidity and risk appetite. The market crash on March 4 is a direct reflection of this adjustment in expectations.

In addition, the continuation of the Russia-Ukraine conflict has also cast a shadow on the market. Ukraine President Zelensky said that the war would not end soon, breaking market expectations for a short-term resolution of the conflict. The superposition of geopolitical risks and tariff policies further weakens investors ‘risk appetite.

This series of policies not only dealt a blow to U.S. stocks, but also affected the crypto market through the linkage effect with U.S. stocks. Crypto market maker Efficient Frontier pointed out that if U.S. stocks continue to weaken, the crypto market may face greater adjustment pressure.

Futures gap covering: a technology-driven correction

From a technical analysis perspective, the covering of the CME (Chicago Mercantile Exchange) bitcoin futures gap is an important trigger for this decline. The so-called CME gap refers to the difference between the CME Bitcoin futures price and the spot price, which usually forms after weekends or holidays. Historical data shows that the probability of covering the CME gap exceeds 90%, while the URPD (Unrealized Profit/Loss Distribution) indicator also shows a significant gap around $77,000. In history, all URPD gaps have been filled.

Recently, market prices have fallen rapidly to this level and then rebounded rapidly. This trend is highly consistent with the characteristics of gap filling. When market sentiment is sluggish and technical selling pressure is intensifying, gap covering will often amplify price fluctuations and form a technical foundation for “drawing the door market”. Although the time of replenishment is uncertain, its probability and influence cannot be ignored.

Outlook: Regulation and capital flow become key

Looking ahead, the trend of the crypto market may be driven by the following factors:

1. Market differentiation under regulatory pressure The U.S. SEC has established a “Crypto Regulation Working Group” to explicitly crack down on speculative tokens (such as Meme coins) that lack practical value. Fields such as DeFi and GameFi may also face censorship due to excessive narrative. In addition, the EU MiCA regulations will fully take effect in January 2025, or further reduce the living space of altcoins.
2. Concentration of funds into compliant assets The Trump administration’s executive order “Strengthening U.S. Leadership in Digital Financial Technology” and the “Payments Stabiloin Clarity Act” have sent positive signals. However, funds may flow preferentially to policy-backed assets (such as BTC, ETH and stablecoins) rather than fully boosting the copycat market.
3. Opportunities in short-term fluctuations Although macro risks have not yet dissipated, events such as Ethena’s US$100 million financing and Ethereum Pectra upgrade and online testing have still injected local vitality into the market. If Trump’s “Crypto Summit” on March 7 can provide clear policy directions, it may become a catalyst for a new round of market conditions.

Conclusion: When the tide recedes

The filling of the CME gap has completed the technical self-correction, but the real test of the market has just begun. The White House Crypto Summit on March 7 may bring new policy sparks, but investors need to be vigilant: against the background of macroeconomic headwinds, unclear regulatory frameworks, and capital stock games, any good may become a catalyst for both long and short kills. agent. For ordinary investors, it is particularly important to remain rational in this “drawing market”. Focusing on compliance lines and assets with solid fundamentals may be a better strategy to cross the cycle.