The Bollinger Band shows that the price of Bitcoin may see a spike in volatility. Most probably, it will be like 2016’s post-having cycle.
The Bollinger Band width of BTC (Bitcoin) dropped below 0.95, for the first time since 2016. The Bollinger Band is a widely utilized technical indicator. It evaluates the volatility trend of an asset. It signifies that a considerable volatility spike is imminent.
From 2019 to 2020, the price of BTC has been relatively stable. Apart from March, when Bitcoin plummeted below $3,600, it mostly ranged between $6,000 and $12,000.
The volatility of Bitcoin might slowly increase if a similar pattern ensues as 2016, in the months to come.
To determine a volatility range, the Bollinger Band uses the moving average of an asset’s chart.
For example, the Bollinger Band widens when BTC becomes more volatile. Thus, it will indicate a more significant price range forming. The band narrows if Bitcoin becomes less volatile. Therefore, it will suggest a small range.
There is the main reason why a narrow Bollinger Band indicates a volatility spike. It is because it means the range is getting tighter.
The possibility of breaking down or upwards from the range increases if Bitcoin will drop or increase within a tight range.
For example, it is challenging for Bitcoin to break out from a range of $9,000-$12,000. The price range is broad. Thus, it would take significant selling pressure or buying demand for the range to break.
If the range is between $10,000 and $11,000, in contrast, the probability of the range breaking upwards or down rises.
The Bollinger Band for the monthly chart of BTC has never been narrower, according to Bitcoin trader Nunya Bizniz.
The monthly chart covers until 2013. At that time, there was not a proper exchange market in place. Thus, it covers most of the historical price cycles of Bitcoin.