Bitcoin’s ranging behavior is representative of the historical record
Bitcoin remains locked in ranging mode, although each bobble, leap, and fall draws immediate attention, as if a sudden reversal were imminent. The overall performance of the world’s favorite digital asset in 2019 has been nothing short of incredible, but its recent ranging behavior has quickly turned unbridled confidence into something bordering closer to mild depression. Crypto enthusiasts are expecting too much from the market too soon. All financial markets range. In fact the general statistic is somewhere between 70% and 80% of the time, which means that a trend is actually a special event.
If we look back at Bitcoin’s historical record for just the past four years or so, there have been six significant ranging periods. Eventually, there was a breakout, a new trend formed, whether up or down, and then, you guessed it, BTC went into range mode once again. This ranging period began back in June and is roughly in its thirteenth week. It is boring. Analysts that cannot see the forest for the trees keep claiming that momentum has waned, that the bears are taking over, and that Bitcoin must correct by 30%+, if it is ever to march on to a new All-Time-High. It is time to look at the broader perspective.
The logarithmic scale may add to the confusion, but the current support level of $10,000 appears to be the axis about which Bitcoin has decided to vibrate about. From a long-term view, a breakout is imminent, but that might mean a few more weeks or even months, as a few astute analysts have already postulated. In case you are curious, the odds favor a breakout in the direction of the previous prevailing trend.
That last statement does not mean that one should load up on BTC today. Bitcoin has also demonstrated that it does not always follow the technical “odds”, as analysts might wish. Market dynamics for Bitcoin are still in their infancy stage. Yes, analysts are applying technical analyses that have found credence in other markets, one of the beauties of technical analysis, but mysteries still abound as to how “Whales” and limited numbers of coins in the market will actually play out over time. We can speculate how supply and demand forces might work, but until the market is under true stress, we will not know for sure. In any event, when analysts say that the “fundamentals” are strong, they are predicting that the odds will hold up, and Bitcoin will form new highs.
There is one other unique “twist”, however, about today’s situation, and it involves volatility, the characteristic of Bitcoin that sets it apart from any other security or asset class. The volatility measure of BTC right now is the lowest that it has been since May of this year. When reporters with Forbes spoke with David Martin, chief investment officer at U.S. asset manager Blockforce Capital, he noted: “So far in September, bitcoin's price has continued the consolidation and range-bound nature that was kicked off early August. As of this morning, bitcoin's volatility is now at a four-month low of 53.5%, a level not seen since May 11th.”
What is the significance of this statement? Many very wealthy traders have learned to follow volatility or its derivatives for hints of where the next breakout might occur and in which direction. One simple way is to closely follow an “Average True Range” (ATR) indicator religiously, while also keeping an eye on Bollinger Bands. The bands tighten during low volatility, almost as if preparing to explode. An expanding ATR, however, is a precursor for the “explosion”. When it expands, the direction of the market at the same time is a hint of what is to come or, as the purists would say, the “odds” favor it.
Take heed of what we said about Bitcoin following the “odds”. It does beat to the sound of its own internal drummer. It could do anything, but the key is to be prepared for the breakout when it comes. Another old trading axiom is that the longer the ranging period, the greater the “explosion”. Look back at the above chart, if you want to see confirmation of that outcome. To be forewarned is to be forearmed.