Bitcoin price is at a critical moment in its market cycle. And although it’s been said dozens of times before, the next move could choose the trend direction for months to come.
At this very moment, the asset is testing a level that in the past, rejection has caused a 40% drop on average. Will the first-ever cryptocurrency make it though the key resistance, or will another 40% collapse follow?
Bollinger Bands May Hold the Key To Bitcoin Bull Run
Bitcoin price has been trading sideways for months now, reaching historic low levels of volatility. The price action is a stark contrast to the large peaks and troughs investors in the asset class is used to.
The wild price swings of the last year have now stagnated, suggesting a major move is coming.
Bollinger Band Width, a metric measuring volatility or a lack thereof, has plummeted to record low levels. In the past, these lows have resulted in a major break of volatility.
The last time volatility was this low, was prior to the 2019 Bitcoin rally that took the asset to $14,000.
Also according to past price action, the asset has been strongly rejected from the middle Bollinger Band line.
Bitcoin price is once again trading just beneath the middle line on the Bollinger Bands. In the past, rejection from this key resistance level has resulted in an average of 40% decline.
Bitcoin BTCUSD 3D Bollinger Bands | Source: TradingView
Mid-BB Retest on 3D BTCUSD Leads To 40% Decline on Average, Black Thursday Drop
According to the Bollinger Bands, a popular technical analysis indicator, a strong rejection could occur. Past rejections at this level, have resulted in an over 40% decline on average.
Even more frightening for Bitcoin investors, the asset rejecting at the mid-BB line on the 3-day timeframe the last time around, resulted in Black Thursday.
Bitcoin price collapsed by over 50% following that rejection, taking the rest of the crypto market down with it. It also kicked off a correlation with the stock market that hasn’t boded well for cryptocurrencies.
Another 40% rejection from here, would take Bitcoin price back to as low as $5,600, where support must hold.
Support holding there, would result in a higher low, and put the asset back on track towards an uptrend. However, if that support level cannot hold, and the rejection gets even more severe than Black Thursday, a new bear market low could be set.
Bollinger Bands are used in a variety of ways, but a break below or above the middle-band, an exponential moving average, can act as a powerful buy or sell signal.
The moving average can also act as support or resistance. If the middle Bollinger Band line holds strong as resistance, another drop in Bitcoin could be next.