For the first time since 2016 Bitcoin’s Bollinger Bandwidth (BTC) fell below 0.95. The Bollinger Band is a widely used technical indicator of this assesses the volatility trend of an asset. This could mean that a large spike in volatility is imminent.
The price of Bitcoin was relatively stable from 2019 to 2020. BTC was mostly between $ 6,000 and $ 12,000, except in March. when it fell below $ 3,600.
The Bitcoin monthly price chart with the Bollinger Band. Source: TradingView.com, Nunya Bizinz
In the next month Bitcoin volatility could gradually increase if a pattern similar to 2016 occurs.
Does a Bitcoin bull cycle start materializing halfway through?
The Bollinger Band uses the moving average of an asset’s chart to determine an area of volatility. For example, as BTC becomes more volatile, the Bollinger Band widens, indicating that a wider price range is forming. As BTC becomes less volatile, the band narrows, indicating a small area.
The main reason a narrow Bollinger Band indicates a spike in volatility is likely because the area is narrowing. When Bitcoin falls or rises in a narrow range, the likelihood of it breaking out of range or rising increases.
For example, it would be challenging for BTC to switch from $ 9,000 to $ 12,000. The price range is wide and it would take significant buying demand or selling pressure to break. Conversely, if the range is between $ 10,000 and $ 11,000, the likelihood of breaking or increasing the range increases.
According to the bitcoin trader Nunya bizniz, The Bollinger Band for the monthly Bitcoin chart has never been this tight.
The monthly chart covers until 2013 when there was no adequate forex market. Hence, it essentially covers most of BTC’s historical price cycles. The breadth of the Bollinger Band reaches an unprecedented range that BTC has not seen before. Given the trend, Bizniz suggested that the volatility could occur.
The Bollinger bandwidth has never been so tight.
Incoming volatility? pic.twitter.com/JTc7OYqbU4
– Nunya Bizniz (@Pladizow) 5th October 2020
Investors also expect increased volatility
Bitcoin has been stable in a narrow range between $ 10,500 and $ 11,000 for an extended period of time. As, Investors are starting to expect a big BTC price move.
Bitcoin’s historical 30-day volatility. Source: Raoul Pal
Raoul Pal, CEO from Global macro investor Y. Real Vision Groupbelieves there will be a “great movement” soon. Explained::
“Bitcoin’s historic 30-day volatility has fallen rapidly and is in the 1920s. In the past it reached 20% vol seven times. Prices rose 6 times immediately and the volume reached 80% in a few months. Once (November 2018) prices fell sharply. In any case, there is going to be a great movement soon. “