A rare crypto technical indicator signal has made an appearance after more than six years. The last time it fired, the total cryptocurrency market cap surged by over 7000%, catapulting the asset class to the forefront.
Could the signal now being observed be a prelude to another 2017-style market boom in digital currencies?
Why Crypto Could Be On The Verge Of A 2017-Style Boom
Volatility is a measure of how dramatically prices fluctuate within a given timeframe. For example, an asset that fluctuates between $5 or less is considered less volatile than Bitcoin, which can crash by 80% and then skyrocket by 1000%.
The Bollinger Bands are used to assess volatility over the last 20-periods. They incorporate a moving average and two standard deviations. When the bands tighten, it signals a decline in volatility, and when they expand, it means that intense volatility is ahead.
The squeeze setup involves the Bollinger Bands squeezing, and then expanding to release the energy that was accumulating within the trading range. This is precisely what is happening in the Total Crypto Market cap chart for the first time since late 2016.
As the following chart shows, Bollinger Band Width is at its tightest in more than six years. Although past performance cannot be indicative of future results, the last time the signal appeared, the crypto market value rose from $10 billion to $780 billion.
A massive move is coming in cryptocurrencies | TOTAL on TradingView.com
Buckle Up: Bollinger Bands Suggest Volatility Ahead
The Bollinger Bands suggest that volatility is coming, but they are not indicative of the direction of price action. To generate a buy signal, the price would need to close above the upper band. Until then, all we can tell is that a big move is on the cards.
Volatility, however, can also be to the upside, despite being commonly associated with downside in financial markets. The VIX, which is a measure of implied volatility in the S&P 500, is known as the “Fear Index” because it usually spikes during corrections.
Oxford Languages defines volatility as “the liability to change rapidly and unpredictably, especially for the worse.”
In conclusion, things could worsen for crypto, but considering the prolonged downtrend and evidence from the last time the signal fired, this level of Bollinger Band Width could trigger a 2017-like rally in crypto.
