Is BTC Price Doomed As Range Narrowing In Volatility Indicator Chart Foreshadows Trouble Ahead?

by James · October 10, 2022

What history and Bollinger bands tell us about BTC trading in the following 20 days? – Photo: Shutterstock

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The uncharacteristically calm trade of bitcoin (BTC) of late may be signaling a potential storm ahead, according to the Bollinger Bandwidth Technical Indicator.

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

But the all-time high recorded in November 2021 did not last long. Just a few weeks later, the US Federal Reserve first signaled an end to the era of quantitative easing, which had pumped trillions into the digital asset 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 largest algorithmic stablecoin – then known as terraUSD (UST) but now traded 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 market crash in June, BTC has mainly traded around the $20,000 mark in a typically narrow range.

And that is what has historically led to problems shown on Bollinger Bandwidths. First invented by financial analyst John Bollinger in the early 1980s, Bollinger Bands are used to predict volatility and price action.

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

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

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