Crypto signal may cause another 2017-type boom
For the first time in over six years, a rare technical indicator signal has appeared in the cryptocurrency market. The last time this signal appeared, the total value of the cryptocurrency market increased by over 7,000%, which helped to bring digital currencies to the forefront of the asset class.
Now that the signal has appeared once again, some are wondering if this is a sign of another market boom in digital currencies, similar to what was seen in 2017.
Why Crypto Could Be On The Verge Of A 2017-Style Boom
Volatility is a measure of how much the price of an asset varies over a certain period of time. For example, an asset that only fluctuates by $5 on average is not nearly as volatile as something like Bitcoin, which can drop by 80% and then skyrocket by 1000%.
The Bollinger Bands are a tool that visualizes volatility over the last 20 periods using a moving average and two standard deviations. When the bands contract, it signals a lack of volatility, whereas when they expand, it signals that there is intense volatility ahead.
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A squeeze setup occurs when the Bollinger Bands contract and then expand, releasing the energy that has built up within the trading range. This is exactly what is happening in the Total Crypto Market cap chart for the first time since late 2016.
In the chart below, the Bollinger Band Width is the tightest it has been in over six years. While past performance does not guarantee future results, the last time this signal appeared, the value of the cryptocurrency market increased from $10 billion to $780 billion.
A massive move is coming in cryptocurrencies | TOTAL on TradingView.comBuckle Up: Bollinger Bands Suggest Volatility Ahead
The Bollinger Bands indicate that volatility is coming, but they do not provide information on the direction of price action. For a buy signal to occur, the price must close above the upper band. Until that happens, all we know is that a big move is coming.
Despite being more commonly associated with downside in financial markets, volatility can also lead to an increase in value. The VIX, which is a measure of implied volatility in the S&P 500, is often referred to as the “Fear Index” because it frequently spikes during market corrections.
Even Oxford Languages defines volatility with a negative connotation, stating that it is the “liability to change rapidly and unpredictably, especially for the worse.”
In other words, things could get worse for digital currencies. However, considering the extended downtrend and evidence from the last time this signal appeared, the tight Bollinger Band Width has the potential to produce a rally in digital currencies similar to what was seen in 2017.
