After the 28% drop last week, Friday’s mid-month options expiry resulted in choppy price actions.

This was followed by the owner of Dec 100k Bitcoin options calls to reduce national exposure, selling 1470 contracts 100k call for about 313 BTC ($11.6 million) and subsequently buying 980 contracts 64k call for about the equivalent amount. At the same time, there was plenty of buying volume on the Jan. 29 options with $52k and $72k strikes. Denis Vinokourov of Bequant wrote,

“Motivations are obviously unclear, but if this downsizing of risk continues, it may filter through to the broader market confidence.”

Bitcoin has now established a consolidation range with key levels to watch $39,200 and $34,000. A daily close below $34k would confirm a bearish structure, while a daily close above $39,200 will confirm a bullish structure.

Currently, BTC is being traded with low leverage with funding calmed down, open interest skyrocketing, and the long-short ratio looking neutral.

According to the trader and economist Alex Kruger, $27,500-$27,000 is the key area, and if the price heads back down to 30K, this level can be breached to see $27k, but it will bounce back very fast to $50k.

$BTC views

Price needs to let volatility wear off before its next big move. Thinking 30K-40K range for the next 1-2 weeks. Then either 50K straight or after piercing 30K and bouncing back above 30K within 1-2 days. https://t.co/DZw0frBQzc

— Alex (@classicmacro) January 18, 2021

For now, the market is “waiting for profit-takers and weak hands to be shaken out,” notes on-chain analyst Willy Woo. The analyst believes a rest on the higher time frame would be “very healthy for a next stage rally,” but this could take 1-3 weeks.

“I'm modelling a floor price around ~$29k (daily closing price) for a worst case lower bound in this consolidation,” said Woo, but he doesn’t see a blow-off top because “there's far too much money coming in from strong HODLers.”

According to JPMorgan strategists, the recent drop from $40,000 could bring on further losses. Unless Bitcoin “break out” above $40k soon, the team of analysts led by Nikolaos Panigirtzoglou wrote, the leading cryptocurrency could see an exodus of trend-following investors.

Trend-following traders “could propagate the past week’s correction” and “momentum signals will naturally decay from here up till the end of March” if BTC fails to break above $40,000, they said.

Bitcoin is in a similar position as in late November when it was testing $20k when flows of institutional investment into Grayscale helped BTC extend its rally, wrote the analysts. It is the demand for Bitcoin futures and Grayscale Bitcoin Trust that will determine BTC’s outlook, they added.

“The flow into the Grayscale Bitcoin Trust would likely need to sustain its $100 million per day pace over the coming days and weeks for such a breakout to occur,” the strategists wrote in a note on Friday.

While the leading cryptocurrency is taking a rest, with strong on-chain buying signals that drove this bull market not coming up so far, it has given altcoins the chance to rally as well, which is how the liquidity cycle works in the crypto market — “Huge rally on Bitcoin followed by a breakout on ETHBTC, then majors, the mid-caps and finally the small-caps,” noted HXRO Labs.

This can be seen in Bitcoin dominance, which has dropped from 73.7% on Jan. 3rd, last seen in July 2017, to 66.6% today. HXRO Labs added,

“BTC dominance broke through the wick high throwback level at 67.46% and is headed for a retest of the downtrend line below. It will have to navigate the 20 SMA shortly after. If both break, altcoins will be on steroids until further notice.”

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