Bitcoin price stuck at $32K–$35K: Likely outcomes of BTC ‘flush’ drop

As Bitcoin ranges between $32,000 and $35,500, traders and technical analysts discuss what may come next for BTC.

In the short term, the crucial technical resistance level is $35,500. Throughout the past 24 hours, Bitcoin has continuously rejected at that level. When Bitcoin rose to around $35,500 on Binance earlier on Jan. 13, it saw an 8% drop shortly thereafter, indicating that there is strong selling pressure.

A pseudonymous trader known as “Byzantine General” outlined that there are additional sell orders on Coinbase in the $36,500–$37,000 range, saying “I’m still not taking bets” and adding that he is “casually buying dips with spot.” There is significant uncertainty in the market due to the large price swings between $31,000 and $35,000 with no breakouts or bearish invalidations. The trader also noted that Bitcoin is currently at “VWAP” resistance, with high selling pressure at key resistance levels.

The price of Bitcoin (BTC) is ranging between $32,000 and $35,000 after the big flush drop on Jan. 12. Traders remain mixed around BTC’s short-term trajectory due to various conflicting signals. Some are bullish because of the quick recovery from $30,500 and Grayscale reopening its products to new investors. Others are cautious due to the continuous rejection at the $35,000–$36,000 resistance range.

However, the overall sentiment around Bitcoin has been increasingly positive over the past 24 hours. The swift correction from $41,000 to $30,500 flushed a lot of overleveraged buyers and long contracts. Prior to the correction, the Bitcoin futures funding rate was hovering at over 0.1% most of the time, meaning that the market was significantly overleveraged and overwhelmingly long.

The futures funding rate is a mechanism that balances the market by rewarding buyers when the market is majority short and sellers when the market is majority long. In the Bitcoin futures market, the average funding rate is 0.01%. This means that long contract holders have to pay 0.01% of their position every eight hours to their short-seller counterparty. Because the market was overleveraged for such a long time, when the first big drop happened, the price of Bitcoin began to plummet as consecutive liquidations occurred.

Following the drop, the futures market has become significantly less heated, and most derivatives products have normalized after seeing a rise in interest. Although the Bitcoin futures market’s open interest still remains near its all-time high, the market is healthier than before. This increases the probability of a renewed rally in the foreseeable future.

Positive macro narratives surrounding Bitcoin

According to Ki Young Ju, CEO of trading data platform CryptoQuant, many institutional investors bought Bitcoin at around $30,000. As such, if the price of Bitcoin drops to the $30,000–$32,000 support range, institutions would likely protect that level with large buy orders. This is mainly why Bitcoin saw a large reaction from buyers on Coinbase and other major U.S. exchanges when it dropped to $30,500 on Jan. 12. “The Coinbase outflow on Jan 2nd was a three-year high,” wrote Ju. “Speculative guess, but if these guys are behind this bull-run, they’ll protect the 30k level. Even if we have a dip, it wouldn’t go down below 28k.”

Atop the likelihood of a prolonged whale accumulation at $30,000, there are two key macro narratives that could buoy the sentiment around Bitcoin. First, several mainstream media publications have reported that U.S. President-elect Joe Biden is expected to name Gary Gensler as the chairman of the Securities and Exchange Commission. Gensler previously taught a “Blockchain and Money” course, which has since been released for free on MIT OpenCourseWare. Considering this, Mechanism Capital partner Andrew Kang said that the “probability of #BTC ETF approval just went up significantly.”

If a Bitcoin exchange-traded fund is approved after years of rejection, it would lead to two things. First, it would further legitimize Bitcoin as an established asset class and a store of value. Second, it would enable accredited investors and institutions to reliably invest in Bitcoin. Currently, the Grayscale Bitcoin Trust and the Bitwise 10 Crypto Index Fund are some of the go-to institutional vehicles to invest in cryptocurrencies, including Bitcoin.

Grayscale has reported a significant increase in demand in recent months. On Jan. 12, Grayscale reopened its products to new investors, including investment in GBTC after closing it down in December 2020. If institutions were the main driver of the recent Bitcoin rally, new inflows into GBTC could result in a newfound uptrend in the near term. Coincidentally, it was during the period of the fund’s closure when BTC saw a relatively large correction.

What comes next?

In the foreseeable future, the bullish and bearish scenarios of Bitcoin revolve around two key levels: $30,000 and $35,500. As long as Bitcoin maintains $30,000 as a strong support area, the probability of a breakout above $35,500 increases. A clean move above $35,500 would likely mean a continuation of the rally, which could result in a new leg upward beyond its current all-time high.

Traders and technical analysts say that the current price trend of Bitcoin is quite similar to when Bitcoin dropped to around $16,000 in late November 2020. At that time, Bitcoin consolidated for two weeks before finally breaking out and rallying to $20,000. The BTC price could see a similar trend where it bounces off of the $30,000 support and attempts to break the $35,500–$36,000 resistance range in the near term.

A pseudonymous trader known as “Neko” said that Bitcoin’s rebound has been encouraging thus far. He anticipates BTC to retest $36,000 soon, which would leave the path open for a potential rally back to all-time highs above $42,000: “Very impressive buy backs shown. I’m really liking those wicks on the bottom side of those h4 candles. I think we have found the local bottom for now.”

Another variable to consider in the short term is that the so-called “Kimchi premium” in South Korea has started to decline. When Bitcoin saw trading over $40,000, the premium was consistently hovering over 5%. Ever since the drop, the premium has been hovering at around 2% to 3%. This could indicate that the retail demand for cryptocurrencies in the South Korean market has cooled down slightly following the correction.

Bitcoin has been trading lower on Coinbase as well, which is unusual, as it has been consistently higher than Binance throughout the rally. Coinbase also naturally has a higher BTC price than other major exchanges that use Tether (USDT), due to the minor difference between Tether and the U.S. dollar in the exchange market. Ideally, for the bull trend to resume, the premium on both South Korean exchanges and Coinbase would have to return.