This Indicator Suggests Bitcoin Is Overdue for a Big Price Move

Bitcoin may be building for a big move as price volatility hits four-month low.

Apr 8, 2021 at 11:39 a.m. UTC
Updated Sep 14, 2021 at 12:38 p.m. UTC

A popular price-chart indicator known as the Bollinger bandwidth suggests bitcoin could soon chart a big move – up or down.

The leading cryptocurrency has spent the better part of the last three weeks trading in the range of $50,000 to $60,000. The consolidation has worsened of late, with bitcoin bulls unwilling to lead the price action above $60,000 and bears struggling to force a break below $55,000.

Due to the persistent lack of clear directional bias, the Bollinger bandwidth, a price volatility gauge, has declined to a four-month low of 0.15. Bitcoin (BTC) witnessed big moves during the 2017 bull run each time the bandwidth fell to 0.15.

The indicator is calculated by dividing the spread between the Bollinger bands by the 20-day average of the cryptocurrency's price. Bollinger bands are volatility lines placed two standard deviations above and below the 20-day average of price.

Bitcoin price chart showing narrowing Bollinger bandwidth.

The metric dropped to around 0.15 in February, April and late October 2017, just before price rallies. A similar reading in March, July and September paved the way for market corrections.

The data tells us the impending volatility explosion is agnostic to price direction, meaning the big move can happen on either side.

Bitcoin's daily chart (2020-2021)

Bitcoin's ongoing range play looks quite similar to the early December consolidation below $20,000, which ended with a breakout following the Bollinger bandwidth falling to 0.15.

While the seasonality for April is biased bullish, some analysts say the market looks overstretched. "Everyone who's been in crypto for a while can recognize that things have been getting absolutely ridiculous on every level," trader and analyst Alex Kruger tweeted on Wednesday.

Therefore, the impending big move could be bearish in nature. At press time, bitcoin is trading 1% higher on the day near $56,500, as per CoinDesk 20 data.

DISCLOSURE

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