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According to some recent forecasts on the price of Bitcoin, high volatility could be on the way.
On Monday the price of BTC had briefly touched $70,000, but on the same day it had already fallen back below $67,000.
The following day it also dropped below $66,000, and on Wednesday it dropped below $65,000.
Yesterday it first fell below $64,000, and then in a few hours it plummeted to just over $62,000.
So from the peak on Monday it lost 11% in four days, but then it slightly bounced back and returned at least above $64,000.
Summary
Volatility incoming: the latest forecasts on the price of Bitcoin
Although such a dynamic makes it clear that this week the volatility of the price of Bitcoin has increased, it is not at particularly high levels.
In the past, there have been declines even much larger, in four days, such as the 14% at the beginning of July.
It is worth noting, however, that starting from the end of February, despite episodes of increased volatility, the price of Bitcoin has almost always moved sideways between $57,000 and $72,000 with only two brief exceptions.
According to some forecasts, volatility could increase.
In fact, technical analysis shows how the width of the Bollinger bands has now reduced to levels that have historically preceded true volatility explosions, as happened for example at the end of 2023.
At the time, just under a year ago, the price of BTC first dropped from $29,000 to $25,000, and then after three months started to rise strongly. By October it was already above $33,000, and by December it had significantly surpassed $40,000.
The key indicator
In this case the key indicator is the so-called “Bollinger bandwidth”.
It is an indicator that predicted the boom in volatility at the end of 2023, and it is giving similar signals again.
The famous Bollinger bands are volatility bands positioned above and below the 20-day or week moving average of an asset’s price. The bandwidth is calculated by dividing the spread between the volatility bands by the 20-period SMA.
This Bollinger bandwidth of Bitcoin has recently dropped to 20% on the weekly chart.
This decline has brought it to a level that had not been seen since the end of October, precisely when the price of BTC jumped above $33,000 after months of stagnation. Subsequently, that volatility ended up pushing the price above $40,000 by the end of the year.
The even more interesting thing is that a similar dynamic also happened just before the volatility explosions of mid-2012, mid-2105, October 2016, and November 2018.
It should be noted, however, that an increase in volatility does not necessarily mean an increase in price.
The USA elections change the scenarios on the predictions of Bitcoin price
In November, the presidential elections will be held in the USA.
The crypto market roots for Donald Trump, who currently appears to be the favored candidate, but rival Kamala Harris is catching up.
It is possible that Harris’s recovery is dampening some enthusiasm, even though Trump’s election probabilities remain higher.
The former Democratic candidate Joe Biden, current president of the USA, withdrew from the presidential race on July 21. The price of Bitcoin was around $67,000 and did not react much to that news. It did not react even when Kamala Harris was indicated as a probable replacement.
On the other hand, the polls showed Trump solidly favored, but when slightly less bad polls for Harris started circulating, the price of Bitcoin seems to have dropped a bit.
It is not clear, however, how much such a dynamic may have actually influenced this week’s decline, also because in reality Harris’s positions regarding the crypto market are not yet precisely known.
The sharp drop yesterday was triggered after the release of the July data of the US manufacturing PMI index, which fell more than expected, and perhaps it is precisely the doubts about the resilience of the US economy that have had the greatest impact.
The Fed
As for Bitcoin specifically, the attention is focused on the monetary policy of the United States central bank.
The hypothesis that is now circulating strongly is that the Fed in September might start cutting rates, and this should be a good sign for Bitcoin.
Furthermore, the hypothesis that the Fed might timidly start to stop the QT (Quantitative Tightening), that is, the withdrawal from the markets of the immense quantity of dollars injected in 2020/2021, is also beginning to circulate.
In June, the QT has already been reduced, and there is the possibility that the Fed will reduce it further. According to some analysts, it might even decide to suspend it in the coming months, and this would be an excellent signal for the price of BTC.
Therefore, if volatility really increases, and if in the autumn the Fed’s monetary policy becomes substantially less restrictive, the probabilities of a further rise in the price of Bitcoin would increase.