Bitcoin (BTC) is showing signs of an impending burst of volatility, comparable to the significant 40% gains it experienced in January.
On-chain data, as reported in analytics firm Glassnode’s weekly newsletter, The Week On-Chain, points to the tightest Bollinger Bands for BTC since the beginning of 2023.
BTC’s price has remained in a narrow range for a whole month, with $30,000 acting as a pivotal point for sideways movement.
This situation is testing both bullish and bearish traders, leaving them uncertain about the future direction of the market.
Analyst Aksel Kibar observed on July 21 that the prolonged sideways action is often a precursor to strong price movements, although he remains unsure of the direction.
To prepare for the upcoming surge in volatility, he sticks to his well-defined boundaries and awaits the directional move.
Bollinger Bands, a classic volatility indicator, are currently signaling that the days of rangebound BTC price action are limited. These bands use standard deviation around a simple moving average to determine when a shift in trend is likely.
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At present, the upper and lower bands are closer together than at any point during BTC’s upside in 2023, indicating a potentially significant move soon.
The market is experiencing a period of extremely low volatility, with the 20-day Bollinger Bands indicating an extreme squeeze, marking the “quietest BTC market since the lull in early January.”
Such a scenario previously led to a breakout in January, resulting in substantial gains throughout the month.
Glassnode also observed that, despite BTC’s price gains since January, there is little active selling for profit or loss at current levels.
This lack of “realized” activity is a common occurrence after price cycle lows.
Investors seem reluctant to spend their coins on-chain, as evidenced by the relatively small sum of profits and losses locked in by the market, amounting to approximately $290 million per day.
This figure, although significant on a nominal basis, is comparable to the situation in 2019 and October 2020, even though the Bitcoin market cap has approximately doubled since then.
In summary, Bitcoin’s tight Bollinger Bands and the lack of active selling indicate an imminent surge in volatility.
Traders and investors are eagerly anticipating the directional move, as it has the potential to rival the significant gains witnessed in January.
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