Bitcoin Indicator That Forewarned Late 2023 Volatility Explosion Is Lighting Up Again

Bollinger bands are a type of range indicator that are positioned two standard deviations away from a moving average of an asset’s price over a 20-day or 20-week period. The distance between these upper and lower bands, called the bandwidth, is calculated by dividing the gap between the volatility bands by the moving average itself, resulting in an oscillator that doesn’t have fixed boundaries.

The width of Bitcoin’s Bollinger Bands on its weekly chart has shrunk to 20%, a level similar to when Bitcoin departed from its long-term trading range between $25,000 and $32,000 at the end of October. After reaching over $40,000 by year’s end, Bitcoin climbed to new all-time highs above $70,000 in March this year.

20% has recently been the new figure, which comes after a span of four months where the price fluctuated between $60,000 and $70,000, occasionally dropping briefly to around $55,000.

Back in November 2018, October 2016, around mid-2015, and mid-2012, the bandwidth showed a pattern similar to the ones preceding the cryptocurrency market volatility spikes, as CoinDesk explained in October.

In simpler terms, when volatility seems stable within a narrow range (narrow bandwidth), it typically signals an upcoming change or increase in volatility, either a significant price shift or a surge in instability. Conversely, a wider bandwidth suggests a period of calm or stability to follow (cooling period).