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Bitcoin Bollinger bandwidth: Is BTC price doomed as narrowing range in volatility indicator chart pattern portends trouble ahead?

By Daniela Ešnerová

13:07, 10 October 2022

Coin with bitcoin (BTC) logo and market moves overlay
What does history and Bollinger bandwidths tell us about BTC trading in the following 20 days? – Photo: Shutterstock

The uncharacteristically calm trading of bitcoin (BTC) lately could be about to signal a potential storm ahead, according to the Bollinger bandwidth technical indicator.

Around this time last year, the world’s biggest cryptocurrency was on a record-breaking climb, conquering new high after a new high until the crypto king finally reached its all-time high, shortly after ProShares bitcoin ETF (BITO) was approved in what was seen as a watershed moment for the industry. 

But the all-time high recorded in November 2021 didn’t last long. Just a few weeks later, the US Federal Reserve first signaled an end to the quantitative easing era, which had pumped trillions into the digital assets market, and BTC began its downward spiral.

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Calm before the storm?

In 2022, BTC and the rest of the crypto market saw two major crashes. One was in May, after the biggest algorithmic stablecoin – then known as terraUSD (UST) but now trading as terraclassicUSD (USTC) – lost its dollar peg. The second was in June when crypto lender Celsius Network (CEL) froze all transfers and withdrawals.

Since the June market crash, BTC has been mainly trading around the $20,000 mark in an usually narrow range.

XRP/USD

0.48 Price
+6.970% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.11 Price
+0.600% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

BTC/USD

57,987.10 Price
+0.480% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

BCH/USD

375.55 Price
+6.860% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

And that’s what historically has led to troubles shown on Bollinger bandwidths. First invented by financial analyst John Bollinger in the early 1980s, Bollinger bandwidths are used to predict asset volatility and price action. 

Bollinger bands show a percentage difference between the higher and lower bands. Periods of low volatility are generally followed by increased volatility. The narrowing bandwidth suggests low volatility, and bitcoin’s bandwidth has dangerously narrowed.

According to an analysis by Bloomberg, four out of the five times the bandwidth of BTC narrowed this much, bitcoin fell on average 16% in the following 20 days. The exception to this was back in October 2021 when BTC went on its record-breaking rally instead.

Only time will tell whether history will repeat itself and whether BTC traders are in for choppy waters ahead. Whether that is the case or not, it is important for investors to carry out their own thorough research before making an investment decision and bear in mind that past performance is no guarantee of future returns.

Markets in this article

BTC/USD
Bitcoin / USD
57987.10 USD
277.35 +0.480%

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