For the fifth straight week, bitcoin is locked in a low-volatility squeeze just like one seen forward of a sudden $2,350 rally in October 2019.
Whereas the cryptocurrency has leapt over 4% previously 24 hours, costs nonetheless stay trapped between $9,000 and $10,000. The truth is, the highest cryptocurrency by market value has spent the higher a part of the final two months buying and selling in that slim vary, in line with Fintech Zoom’s Bitcoin price Index.
As a result of persistent lack of clear directional bias, the Bollinger bandwidth, a price volatility gauge, has declined to 0.08, the bottom degree since mid-October 2019.
Bollinger bands are positioned two normal deviations above and under the 20-day shifting common (MA) of price. In the meantime, the Bollinger band width is calculated by dividing the unfold between the volatility bands by the 20-day MA.
Bitcoin witnessed a bull-bear tug of warfare within the vary of $7,700–$8,600 for over three weeks, ranging from Sept. 26, 2019 (above proper). As volatility fell, the Bollinger bandwidth declined to 0.08 on Oct. 17.
A chronic interval of low-volatility consolidation usually paves the way in which for a giant transfer in both course, in line with technical evaluation concept. That’s what occurred in 4 days after Oct. 17. The cryptocurrency suffered a minor drop from $8,000 to $7,300 on Oct 22-23 solely to rise sharply to $10,350 by Oct. 26. Basically, costs rallied by $2,350 within the 9 days following the volatility gauge’s drop to 0.08.
Over the previous two years, there have been quite a few cases the place a below-0.10 studying on the bandwidth indicator marked a sudden explosion in volatility.
The sudden upswings in costs seen in early January 2020 and April 2019 had been each preceded by a drop in bandwidth to under 0.10.
It’s essential to notice, in fact, that extended consolidation solely guarantees large strikes, and does indicate something in regards to the final course of costs. Up to now, bouts of low-volatility buying and selling have ended with large price slides, too.
So, if historical past is a information, bitcoin may effectively escape of its restricted buying and selling vary over the subsequent few days.
In conventional markets, choices merchants usually take “straddles” in a bid to revenue from an impending sturdy directional transfer following a uninteresting buying and selling atmosphere. The non-directional technique contains shopping for each calls (bullish bets) and places (bearish bets). Goldman Sachs, for instance, likes straddling when stock volatility is low.
Whereas the longer term course of costs is unsure, with central banks taking unprecedented steps to counter the coronavirus recession with huge stimulus packages, the basics may be aligned in favor of a giant bullish transfer.
Additional, buyers look to be including bets to place for a rally within the cryptocurrency, in line with choices market knowledge.
“The Chicago Mercantile Exchange appears to be stepping up its options presence as we’re seeing some larger orders come into the market with mainly call buying from 11k-13k 1-3 months forward,” mentioned Chris Thomas, head of digital property at Swissquote Bank.
Disclosure: The writer holds no cryptocurrency property on the time of writing.
The chief in blockchain information, Fintech Zoom is a media outlet that strives for the best journalistic requirements and abides by a strict set of editorial insurance policies. Fintech Zoom is an impartial working subsidiary of Digital Forex Group, which invests in cryptocurrencies and blockchain startups.