Is bitcoin about to stage a comeback? This is the sentiment of a few financial analysts out there, who claim that technical indicators suggest the currency may head north from here.
Bitcoin May Be Heading Towards Greener Territory
Financial and crypto reporter Omkar Godbole recently wrote about one specific tech indicator pertaining to bitcoin and its present market conditions. He explained:
Bollinger bandwidth, a measure of volatility calculated by dividing the spread between the Bollinger bands by the 20-day average of the cryptocurrency’s price, has declined to a two and a half-month low of 0.15.
He noted that in the past, similar conditions surrounding this indicator often came before heavy periods of volatility for bitcoin. However, according to David Keller – chief market strategist at StockCharts.com – these conditions do not necessarily mean that BTC volatility is going to decrease right away. He stated:
Bollinger Bands illustrate market volatility, and a narrowing of the Bollinger bandwidth is a way of visualizing the decrease in volatility in recent weeks. In general, periods of lower volatility usually precede price breakouts. We saw that with bitcoin and narrow Bollinger Bands in October 2020 and December 2020 before large price increases, and we also saw that in April 2021 right around the top for bitcoin… The chart of bitcoin remains in distribution mode, with lower highs and lower momentum through much of 2021.
William Noble – chief technical analyst at research platform Token Metrics – offered similar sentiment and mentioned that bitcoin may not be out of the woods just yet. He stated:
Bollinger Band width is a good gauge as to [how] long, or how painful, a range trade has become. With bitcoin BBW crashing to .15, you have a numerical manifestation of the boredom bitcoin traders are living with. BBW can sometimes crash and stay at low levels for up to a month. Low BBW does not guarantee the range will end soon… When using Bollinger Bands, you want to look for a reversal candlestick. If bears try and force the market down, but bulls make a dramatic counterattack that same day, that is the sign that bulls have control, and the range could end. The same goes for the downside. For example, if bitcoin is in a tight range and there is a sudden breakdown because of a problem in the stock market, the sudden shock of the down move can send bulls running for cover.
Watch Things Carefully
Katie Stockton – managing partner and founder of Fairlead Strategies, LLC – indicated that investors need to watch the market closely, as things could change for bitcoin rather quickly. She stated:
I would always cross-reference any tool with other indicators. So, I would be watching the 50-day MA and 30K for a breakout/ breakdown, with a breakout more likely (in my work) from an overbought/ oversold perspective.