- Last week, after reaching a new yearly high of $31,840, the price of Bitcoin quickly retraced to $30,000, invalidating the bullish breakout within a few hours.
- The primary purpose of Bollinger Bands is to measure market volatility. When the price of an asset experiences significant fluctuations, the bands widen, indicating increased volatility.
- The 20-day Bollinger Bands are currently experiencing an extreme squeeze, with the upper and lower bands separated by only a 4.2% price range.
Bitcoin has been going through its quietest and most calm period since January; what will the squeeze in the Bollinger Bands result in?
Bitcoin Market has Calmed Down, But This Anticipation Might Soon End
After reaching a new yearly high of $31,840 last week, the price of Bitcoin quickly retraced to $30,000, invalidating the bullish breakout. Since then, there has been an unusual calmness in the market. Since June 23, BTC has been trading in a range between $29,800 and $31,300, with every attempted upward or downward move quickly failing.
However, one of the most notable technical indicators, Bollinger Bands, suggests that this calmness might soon come to an end. Developed by John Bollinger, these bands provide valuable insights into market volatility and potential price levels.
Bollinger Bands consist of three different lines on the price chart: the middle band, upper band, and lower band. The middle band represents a simple moving average of the average price over a specific period. The upper and lower bands are created based on the middle band and are typically set two standard deviations above and below the SMA, respectively.
The primary purpose of Bollinger Bands is to measure market volatility. When the price of an asset experiences significant fluctuations, the bands widen, indicating increased volatility. Conversely, during periods of decreased price movement, the bands contract, indicating low volatility. This contraction is often referred to as a “squeeze,” where the upper and lower bands come closer together, forming a narrow price channel.
When Bollinger Bands squeeze, it indicates the potential for a significant price movement. The squeeze indicates that the market is in a temporary equilibrium state and is ready to release its energy, similar to a compressed spring. The bullish or bearish signal is determined based on the direction of the breakout.
What Will Happen to BTC Price: Up or Down?
On-chain data provider Glassnode highlighted the current state of the Bitcoin market, noting an extraordinarily low volatility environment. The 20-day Bollinger Bands are experiencing an extreme squeeze, with the upper and lower bands separated by only a 4.2% price range. This indicates that Bitcoin is currently in a period of limited price movement, and it has been described as “the quietest Bitcoin market since the January lull.”
Bitcoin investors may recall that the squeeze in the Bollinger Bands in January signaled the end of a prolonged downtrend. The BTC market was in shock following the FTX crash, and it eventually resolved with the Bollinger Bands squeeze, leading to a 42% price increase in just 26 days.
The squeeze in the Bollinger Bands, combined with decreasing trading volume, intensifies the building pressure in the Bitcoin market. As trading volume diminishes, the potential energy within this squeezed spring becomes even more concentrated.
