The creator of the metric says that ‘squeezing’ the Bitcoin Bollinger Band is not a sure breakout indicator.
Big move begins for Bitcoin
Bitcoin traders are desperate for the new BTC price volatility, but opinions are divided on when that will come. Price metrics show that BTC/USD is currently seeing some of the least volatile conditions in its history. Since the FTX crisis, Bitcoin has settled in a historically narrow trading range that refuses to budge. Despite macro triggers, low-volume holiday trades and the annual candle close, BTC price action remained in a region with a solid focus on $17,000. This is the least volatile period in the history of the Bitcoin historical volatility index (BVOL), and other data similarly shows that such sideways behavior is extremely rare. Two months after FTX, traders and analysts alike are hotly discussing when the breakout for BTC/USD will come and which direction it will go. “A big move is coming for Bitcoin,” Charles Edwards, founder and CEO of asset manager Capriole Investments, said on Jan.
“Bitcoin is currently trading at a massive low in volatility. Overall, when Bitcoin emerges from extremely low volatility, the trailing trend tends to continue. Don’t fight the trend for the next big move.”
An accompanying chart showed the 30-day annual standard deviation of Bitcoin volatility, which is now at lows seen only a few times in the past five years. Wolf of All Streets podcast host Scott Melker marked what he describes as the ‘tightest’ Bollinger Bands he’s ever seen on his daily Bitcoin chart this week. Bollinger Bands are a classic volatility indicator that has been in operation since the 1980s. Likewise, they use standard deviation to determine the upper and lower limits of price action over a given period of time. Multiple use cases arise, including the ability to evaluate relatively volatile or non-volatile price action, along with associated entry and exit points. According to the data, two bands are currently ‘squeezed’ around the central moving average in BTC/USD, leading to assumptions that volatility should emerge now. For creator John Bollinger, however, the length of the squeeze may not be related to the timing or strength of future volatility. In his response to Melker, he said:
“In my experience, prolonged Compressions are rarely valuable signals. I prefer Squeeze and Go!”
Will there be a drop in BTC?
There is no shortage of bearish BTC price predictions in effect at the beginning of 2023. Various alerts warned hodlers of what could happen, including a drop to $10,000 or even lower in the first quarter.
Upside hopes were relatively dim as analysts looked to see what would happen to US macroeconomic policy and its impact on risk assets.