Bitcoin traders may soon see a surge in volatility as the cryptocurrency’s Bollinger bandwidth has narrowed to 20% on the weekly chart. This indicator, which successfully predicted a volatility boom in late 2023, is once again flashing a warning sign for potential price movement.
For those unfamiliar with Bollinger bands, they are volatility bands placed two standard deviations above and below the 20-day/week simple moving average of an asset’s price. The Bollinger bandwidth, an unbound oscillator, is calculated by dividing the spread between the volatility bands by the 20-period SMA.
The last time Bitcoin’s Bollinger bandwidth was at 20% was before the cryptocurrency broke out of a months-long trading range of $25,000 to $32,000 in late October. Following this signal, Bitcoin’s price surged past $40,000 by the end of the year and reached record highs above $70,000 in March.
This recent reading of 20% comes after a period of relative stability, with Bitcoin trading between $60,000 and $70,000 for the past four months. Similar readings on the Bollinger bandwidth have preceded volatility explosions in the past, such as in November 2018, October 2016, mid-2015, and mid-2012.
Volatility in Bitcoin is known to be mean-reverting, meaning that periods of low volatility are often followed by sharp price movements. A narrow Bollinger bandwidth, like the current 20% reading, suggests that a breakout in either direction or a surge in volatility could be on the horizon.
Traders and investors in the cryptocurrency market should pay attention to this indicator as it has historically been a reliable signal for impending price movements. Whether Bitcoin will see a sharp increase or decrease in volatility remains to be seen, but one thing is certain – the market is poised for a significant shift in the coming months.
In conclusion, the Bollinger bandwidth indicator for Bitcoin is flashing a warning sign for potential volatility ahead. Traders should be prepared for increased price movements and be ready to adjust their strategies accordingly. As history has shown, periods of low volatility are often followed by significant price swings, and the current reading of 20% suggests that a breakout may be imminent.