Bitcoin Bollinger Bands echo 40% January gains
Bitcoin Bollinger Bands echo 40% January gains
The Burst of Volatility in the Bitcoin Market: A Sign of Things to Come
The Bitcoin (BTC) market is currently experiencing a period of tight rangebound price action, with $30,000 serving as a focal point for sideways movement. This stagnant period has left both bulls and bears on the edge of their seats, eagerly awaiting a breakout. According to popular analyst Aksel Kibar, this prolonged period of consolidation often precedes significant price movements. While the direction of these moves remains uncertain, Kibar emphasizes the importance of capturing the directional move once it occurs1.
In line with Kibar’s analysis, on-chain data from analytics firm Glassnode reveals the tightest Bollinger Bands in the Bitcoin market since the start of 2023. Bollinger Bands are a popular volatility indicator that uses standard deviation around a simple moving average to determine potential shifts in trend. Currently, the upper and lower bands of the Bollinger Bands indicator for BTC/USD are unusually close together, indicating an imminent release of pent-up volatility. This compression in volatility is a telltale sign that the days of rangebound price action are numbered2.
The current state of the Bitcoin market is reminiscent of the quiet period that preceded the significant price breakout in early January, which ultimately led to gains of around 40% for the month. With the current range of just 4.2%, the market is experiencing its quietest period since the lull in early January. This historical context suggests that the compression in volatility could potentially lead to a similar breakout and subsequent price appreciation3.
Glassnode further notes that despite the price gains since January, there is little active selling of Bitcoin in the market. This lack of “realized” activity is a common phenomenon during periods following price cycle lows. Investors who are holding large profits or losses appear to be extremely unwilling to spend their coins on-chain, resulting in a compression of both realized profit and loss. The total sum of realized profit and loss currently stands at approximately $290 million per day, comparable to previous peak periods in 2019 and 2020. This observation is particularly interesting considering the significant increase in Bitcoin’s market capitalization since those previous periods4.
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In conclusion, the current tight rangebound price action in the Bitcoin market, as indicated by the Bollinger Bands, suggests that a burst of volatility is on the horizon. While the direction of this volatility remains uncertain, market participants should be prepared to capture the directional move once it occurs. Furthermore, the lack of realized activity and spending of Bitcoin despite the price gains since January indicates a cautious approach from investors, potentially contributing to the compression of volatility. As the market eagerly awaits the next major price movement, it is important to monitor these indicators and be prepared for potential opportunities and risks in the evolving landscape of the blockchain industry.
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