- Some technical chart watchers are pointing to a potentially portentous indicator known as the Bollinger bandwidth, a popular way of gauging volatility, which has shrunk to the narrowest since 2020.
- Technical analysts view the tight Bollinger bandwidth as a harbinger of increased Bitcoin swings and potentially a drop in its price, especially in the absence of catalysts to push the cryptocurrency higher.
U.S equities started the week on a weak note as investors remain unconvinced that the U.S. Federal Reserve will pull back its aggressive monetary policy, and that’s put pressure on cryptocurrencies as well.
While all eyes will be fixed on the U.S. Consumer Price Index data for September to be released on October 13, many traders have already bugged out of risk assets, including cryptocurrencies.
Many see Thursday’s U.S. CPI data as a key tipping point that could influence the Fed’s decision on the size of the rate hike at its next meeting in November, with estimates divided between another 75-basis-point hike and a more sanguine 50-basis-point increase.
Depending on how the market perceives the reading, legacy markets and the cryptocurrency markets may witness a pick-up in volatility.
A global wave of monetary tightening to fight inflation has spurred a near 60% slide in Bitcoin this year and some US$2 trillion has been wiped off cryptocurrencies since a high in November 2021.
Against a backdrop of falling prices, a string of high-profile failures at cryptocurrency lenders has also prompted heightened regulatory oversight, with the Biden administration putting pressure on Congress to develop more robust legislation to govern the nascent sector.
However, a minor positive for bulls is that Bitcoin has not tested its June lows and has outperformed the Nasdaq and the S&P 500 in the short term, oscillating in a relatively constrained range around the US$20,000 level in the four months since hitting a low in mid-June.
But some technical chart watchers are pointing to a potentially portentous indicator known as the Bollinger bandwidth, a popular way of gauging volatility, which has shrunk to the narrowest since 2020.
In the past two years, the bandwidth has been similarly narrow five other times and on four of those occasions, Bitcoin subsequently shed almost 16% over 20 days.
Some technical analysts view the tight Bollinger bandwidth as a harbinger of increased Bitcoin swings and potentially a drop in its price, especially in the absence of catalysts to push the cryptocurrency higher.
