Bitcoin has been moving sideways since mid-January, when the price broke out of a parallel upward channel. The BTC price is currently around the same price as on January 13. However, the time of dullness could soon be over, as the Bollinger Band Wide (BBW) indicator indicates.
The BBW is derived from the Bollinger Bands themselves, which consist of a center line (usually a simple moving average) surrounded by an upper and lower band. These bands expand and contract based on the standard deviation of the price from the mean, which is a measure of volatility. The BBW quantifies the degree of divergence or convergence of these bands by calculating the ratio of the difference between the top and bottom bands to the middle band.
Bitcoin Mega Squeeze incoming
In an analysis on X (formerly Twitter), crypto analyst HornHairs drew attention to the BBW, which currently shows a value of almost 0.11. This number is significant because it suggests that the bands are very close together, indicating a period of low volatility or a squeeze. He noticed:
BTC MEGA VOL SQUEEZE: We probably have a MAXIMUM of 10 days before a huge move on BTC takes place. Now is the time to prepare your plan for both directions; you don’t want to be stuck in a frozen panic with no plan when things go up or go down. It’s coming very soon.
Historically, such pressure is often followed by a period of high volatility as the market searches for a new price equilibrium. The main takeaway from the current low price of the BBW is that the market should prepare for a sharp increase in volatility, which will lead to a strong upward or downward movement in the price of Bitcoin.
The term “Mega Squeeze” used by HornHairs points to the unusually close convergence of the Bollinger Bands, implying that the subsequent market movement could be more pronounced than what is typically observed after a BBW contraction. The last few times the BBW approached such low levels, Bitcoin experienced significant price swings shortly afterwards. These historical precedents serve as a guide to what may happen in the days ahead.
The last time the BBW reached its current low was observed on October 13 last year. Following this indicator, BTC saw a significant rally, rising more than 30% in just 10 days. In a contrasting scenario, mid-August 2023 saw BTC’s value fall by 15% in just 8 days. Moreover, Bitcoin showed a notable increase in early January 2023, escalating by 40% within a span of 17 days.
At the time of writing, Bitcoin was hovering around $42,900, with a recent high at $49,000 and a local low at $38,600. These price points will be critical to keep an eye on as the market navigates through this period of limited volatility. The BBW suggests that the breakout, whether bullish or bearish, is likely to drive the price to or even above these levels, marking a new phase of market activity.
Renowned crypto analyst CrediBULL commented about the emergence of the indicator: “Volatility soon. Big move coming up. My bet is UP and the start of our next impulsive stage that we were looking forward to. Place your bets and pack your bags, frens.
The next major resistance on the 1-day chart of BTC/USD is at $43,340 (0.236 Fibonacci retracement level), while the region at $39,800 (0.386 Fibonacci level) offers important support.
Featured image created with DALL·E, chart from TradingView.com
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