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

Traders tired of Bitcoin {{BTC}}’s intermittent days may want to turn to their computer screens. An indicator called “Bollinger Bandwidth” that successfully predicted a volatility spike in late 2023 is shining brightly again.

Bollinger bands are volatility bands placed two standard deviations above and below a 20-day/weekly simple moving average of an asset’s price. An unlimited oscillator, the band width is the spread between the volatility bands divided by the 20-period SMA.

Bitcoin’s Bollinger Band Width has fallen to 20% on the weekly chart, a level seen days before BTC broke out of its multi-month trading range of $25,000 to $32,000 in late October. Prices surpassed the $40,000 mark by the end of the year and reached record highs above $70,000 in March this year.

BTC weekly price chart with Bollinger band width. (Tradingview)

The latest 20% level came after four months of trading in the $60,000 to $70,000 range, barring brief drops to $55,000.

As CoinDesk covered in October, bandwidth showed a similar reading ahead of volatility bursts in November 2018, October 2016, mid-105, and mid-2012.

Volatility is said to be a mean reversion. Therefore, a narrower band representing price stability usually precedes a breakout or volatility burst in either direction. Conversely, a higher band indicates a cooling period on the horizon.