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The price of Bitcoin (BTC) continues to turn down the USD 35,000 resistance level, fall briefly below $ 30,000 overnight on January 22.

BTC has since limited some losses and bounced above USD 31,500. However, at these prices, BTC / USD is heading into its worst week on record, losing more than USD 5,000 in the past four days as the bulls try to establish USD 32,000 as new support.

BTC / USD 1-week candle chart (Coinbase). Source: Tradingview

There are three main reasons why the price of Bitcoin fell so sharply overnight. First, the options market was overheated due to growing put options. Second, a critical area of ​​resistance was rejected. Third, the speed of the sell-off may have led to a panic decline in a short time.

The options market saw more wells

In the options market, there are two types of contracts: put and call contracts. Puts are sell orders and calls are buy orders.

According to Laevitas, a data analytics platform, the options market has $ 3.1 billion in notional interest outstanding and put volume is rising in the near term. They said:

“Only 1 week until the January 29 contract expires on Deribit Exchange with over $ 3.1 billion in notional outstanding interest. Max Pain is on $ 28k – the meme coming true? Increased volume since yesterday, especially for short term options. “

Currently, the options market represents about 33% of the interest outstanding on the futures market. With more than $ 3 billion in interest outstanding, the options market can have a significant impact on the price of BTC.

Bitcoin options traded contracts. Source: Laevitas

Critical resistance rejected, now what?

The USD 35,000 level has been a critical near-term resistance area. Once BTC rejected the level, things moved quickly fell below $ 30,000.

Scott Melker, a cryptocurrency analyst, said Bitcoin swept the lows even though it dipped below the previous support area. So if the bullish structure remains intact, a rally back to $ 35,000 is a possibility. He wrote:

“As usual, the pit went a bit deeper than expected, but it follows the plan. Swept the range lows in the box, bullish SFP and movement up. Solid volume on the SFP. I signed this yesterday and shared it live, not afterwards. Not out of the woods yet. “

Bitcoin price chart showing major levels. Source: TradingView.com, Scott Melker

In the short term, traders will likely look to the $ 35,000 level to confirm where BTC will be heading.

Fall panic

When the price of Bitcoin fell below USD 33,500, its previous support level, a panic wave ensued. In fact, the Crypto Fear and Greed Index plummeted to “fear” for the first time since October after spending months in ‘extreme fear’.

A pseudonymous trader known as “Kaleo” stressed that market sentiment in crypto tends to change quickly. He said:

“If #Bitcoin drops to the low 20K, it will be just low enough that all your friends and family who have bought in the past few weeks will hate you. They will never want to touch $ BTC again … only to ask if it’s a good time to buy more for $ 50K or if they should wait for another dip. “

However, a short-term bullish catalyst for Bitcoin is the continued accumulation of BTC through grayscale. On January 19, the fund added a record 16,244 BTC ($ 607 million) to its holdings in one day, or 18 times the amount of new BTC extracted per day.