The cryptocurrency world experienced a jolt recently as Bitcoin, after weeks of steady consolidation, plummeted 10% intraday. However, what seems like a devastating breakdown might be what experts call a “head fake.” This implies that Bitcoin could rebound above $31,000 in the coming weeks. But if it doesn’t, brace for a prolonged downturn.
Over recent months, Bitcoin has been hovering around the $29,000 mark, especially after it kickstarted the year with a commendable recovery from its January lows. What’s notable is the historically low volatility witnessed in BTCUSD 1W, causing its Bollinger Bands to tighten up more than ever. Historically, periods of low volatility are usually succeeded by high volatility phases, making Bitcoin akin to a pressure cooker waiting to burst.
This phenomenon within the Bollinger Bands is termed a ‘Squeeze.’ Such a formation becomes valid once the Bollinger Band Width hits its lowest in six months, a threshold BTCUSD 1W recently breached. The curveball was thrown when prices dived instead of a bullish explosion, triggering massive liquidations, even surpassing those during the FTX collapse. This movement posed a question – is this the onset of a bearish phase or just the “Head Fake”?
Drawing from John Bollinger’s insights in his book, Bollinger on Bollinger Bands, there’s an anomaly traders need to watch out for. Bollinger mentions that often, as a Squeeze concludes, there’s a deceptive move in prices, which soon turns around, aligning with the evolving trend. Further elaborating, Bollinger describes the typical sequence: a Squeeze, a band tag, and the actual significant move. More often, this happens within the bands, and the breakout signal is only clear once the movement has commenced.
Given Bitcoin’s current trajectory, it’s stationed at a juncture where a head fake can occur. It might reverse upwards, breaching the upper Bollinger Band, subsequently signaling a breakout. However, if the price continues, the head phony theory stands debunked.
With Bitcoin’s unpredictable nature, the coming fortnight becomes instrumental. It will dictate whether the recent nosedive was a mere hiccup, the infamous “Head Fake,” or a precursor to a more profound bearish phase. The crypto community will watch closely, analyzing every price movement and hoping for the best.