A rare crypto technical indicator signal has appeared for the first time in over six years. The last time it fired, the total cryptocurrency market cap climbed more than 7,000% and put the asset class on the map.
With the signal now firing once again, is this 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 the measure of how much price varies within a timeframe. For example, an asset that rises and falls $5 either way on average is nowhere nearly as volatile as something like Bitcoin which can crash by 80% then rip higher by a 1000%.
The Bollinger Bands visualize volatility over the last 20-periods using a moving average and two standard deviations. When the tools tighten, it signals a lack of volatility. When the bands expand, they signal intense volatility ahead.
A squeeze setup involves the Bollinger Bands tightening, then expanding to release the energy built up in the trading range. This is precisely what’s happening in the Total Crypto Market cap chart for the first time since late 2016.
In the chart below, Bollinger Band Width is at the tightest in over six years. Although past performance is no guarantee of future results, the last time the signal appeared the crypto market climbed from $10 billion to $780 billion in value.
Buckle Up: Bollinger Bands Suggest Volatility Ahead
The Bollinger Bands are telling us that volatility is coming, but says little about the direction of price action. For a buy signal to occur, price must close above the upper band. Until that happens, all we know is a big move is coming.
Volatility, however, can resolve to the upside, despite being more so associated with downside in financial markets. The VIX, which is a measure of implied volatility in the S&P 500, is also called the “Fear Index” because it so often spikes during corrections.
Even Oxford Languages defines the term with a negative connotation. According to the authority, volatility is the “liability to change rapidly and unpredictably, especially for the worse.”
Simply put, things could also get worse for crypto. But considering the extended downtrend and evidence from the last time the signal fired, this tight of Bollinger Band Width has the potential to produce a 2017-like rally in crypto.