Bitcoin, the world’s leading cryptocurrency, has been trading sideways for the past few weeks after breaking out of a parallel upward channel in mid-January. However, the current period of stagnation may soon come to an end, as indicated by the Bollinger Band Width (BBW) indicator.
The BBW is derived from the Bollinger Bands, which consist of a middle line surrounded by upper and lower bands. These bands expand and contract based on the standard deviation of the price from the mean, indicating the level of volatility in the market. The BBW quantifies the degree of divergence or convergence between the bands by calculating the ratio of the difference between the upper and lower bands to the middle band.
Crypto analyst HornHairs has drawn attention to the BBW, which currently shows a reading close to 0.11. This reading suggests that the bands are very close together, indicating a period of low volatility or a “squeeze.” Historically, such squeezes have been followed by periods of high volatility as the market searches for a new price equilibrium.
The unusually tight convergence of the Bollinger Bands, referred to as the “Mega Squeeze” by HornHairs, implies that the upcoming market move could be more pronounced than usual following a BBW contraction. Historical data reveals that previous instances of low BBW readings have led to significant price swings in Bitcoin.
In October 2023, when the BBW reached a similar low, Bitcoin experienced a rally of over 30% in just 10 days. Conversely, in mid-August 2023, the value of Bitcoin declined by 15% within 8 days. In January 2023, Bitcoin showcased a remarkable surge, escalating by 40% in a span of 17 days.
As the BBW suggests an impending breakout, Bitcoin’s current price is crucial to monitor. At the time of writing, Bitcoin is hovering around $42,900, with recent peaks at $49,000 and a local low at $38,600. These levels will likely serve as key references as the market enters a new phase of activity.
Renowned crypto analyst CrediBULL commented on the emergence of the indicator, predicting a forthcoming period of volatility. Their bet is on an upward movement, signaling the start of the next impulsive leg anticipated by many in the crypto community.
Analyzing the 1-day chart of BTC/USD, the next key resistance level is at $43,340, which corresponds to the 0.236 Fibonacci retracement level. On the other hand, the region at $39,800, representing the 0.386 Fibonacci level, provides crucial support.
Bitcoin’s sideways movement may soon give way to significant price action, as indicated by the tightening of the Bollinger Bands and the low BBW reading. Traders and investors should prepare for a period of increased volatility, with the potential for a strong upward or downward movement.
However, it is important to note that cryptocurrency investments carry inherent risks. Therefore, conducting thorough research and making informed decisions remains crucial for navigating the volatile market successfully.