The past week has been a boring one for Bitcoin traders. The price of Bitcoin has been sitting comfortably around $6,550, so much that traders are joking that “Bitcoin is the new stablecoin.”
However, some traders are suggesting that this lack of price action means a big move could be brewing.
To understand where the price is going, let’s take a look at the Bollinger Bands.
Bollinger Bands are a technical analysis tool created by taking a twenty-period moving average (the middle line), then adding and subtracting a standard deviation calculation to create the outside bands. When the bands get wider, volatility is higher, and when they contract, volatility is declining.
Lower volatility often implies that big moves are coming soon.
For this analysis, we’ve also included the Bollinger Band Width (BBW) on the bottom of each chart. This indicator is a measure of how wide the bands are, in order to better judge an asset’s volatility. The BBW is calculated as such:
Bandwidth = (upper band− lower band) / middle band
With that out of the way, let’s take a look at how the Bollinger Bands have been behaving lately. Here’s the daily chart since March:
Daily Bollinger Bands Width is reaching all-time lows. You can visually see on the chart how the bands are squeezing.
You can also notice how price has been stagnant for the past two weeks.
Remember, the middle line is the 20-day moving average. The 20-day moving average has been flat at $6,580, meaning the price has barely budged.
We can see that the daily volatility has declined, but what about on a larger time frame? To look at the bigger picture, here’s the weekly chart:
The weekly chart takes into account the enormous bull run of 2017, so you can see that the bands exploded in June and November of last year. Since 2018 began, however, the bands have slowly been tightening. Right now, they’re at their lowest YTD.
However, this means that a move up could be coming.
Next, we’ll take a look at previous times that the weekly Bollinger Bands squeezed. The chart above shows one instance, in November 2017, when the bands squeezed and the bull market began.
Zooming out, we see that most times the bands squeezed, the price shot up.
Lastly, let’s look at the BitMEX volatility index. This is a calculation done by BitMEX to measure daily volatility. They use a different calculation than the BBW, but it still shows that volatility is at yearly lows. The last time volatility reached this low was in April of 2017.
End in Sight?
Does all of this data mean the bear market is over? The answer is - It’s hard to tell. The market has been in a downtrend all year, but as the selling slows down, traders seem to be becoming more optimistic about a return to higher prices.