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Bitcoin’s price volatility, as represented by Bollinger bandwidth, has hit the lowest level since May 3, and is closing on a level seen ahead of violent price swings in the past.

While technical charts are increasingly favoring a downside move, bitcoin’s non-price metrics continue to call a bullish move, which, so far, has remained elusive.

BTC risks falling to $9,855 (Sept. 11 low) in the next couple of days and could extend the decline toward $9,320 (Aug. 29 low).

The bearish case would weaken above Sept. 13’s high of $10,458. The outlook, as per the daily chart would turn bullish above $10,956 (Aug. 20 high).

Bitcoin’s volatility has hit its lowest level in over four months – a price squeeze that may force a significant move either way.

BTC’s bull run stalled at highs above $13,800 on June 26 and prices have created lower highs and higher lows ever since.

Notably, the trading range has narrowed sharply over the last two weeks, with bitcoin consolidating between $9,850 and 10,950, as per Bitstamp data.

As a result, the Bollinger bands – volatility indicators placed 2 standard deviations above and below the price’s 20-day moving average – have narrowed sharply.

More importantly, Bollinger bandwidth, an indicator used to gauge market volatility, has dropped to 0.11 – the lowest reading since May. 3, as seen in the chart below.

Bollinger Bandwidth

The volatility level has dropped steadily from 0.62 to lows near 0.10 in the 2.5-months.

In the past, BTC has witnessed big moves following drops to or below 0.10 (marked by arrows).

For instance, the bandwidth dropped to 0.06 a week before BTC broke into a bull market with a high-volume move to $5,000 on April 2. It also fell to 0.10 on May 2 – a day before BTC jumped above $5,600, marking an upside break of a three-week-long consolidation. And, in the days leading up to last November’s sell-off below $6,000, volatility dropped to 0.05.

If history is a guide, then BTC could soon witness a big move on either side. Technical analysis theory also states than an extended period of low volatility is often followed by a big move.

While the record high hash rate (miner confidence) is calling a bullish move, the technical charts are beginning to favor the bears.

As of writing, BTC is changing hands at $10,170 on Bitstamp, representing little change on a 24-hour basis.

Daily chart

Bitcoin jumped 2.6 percent on Sept. 12, confirming an upside break of a falling wedge pattern. The bullish breakout, however, failed to draw bids and the cryptocurrency has ended up creating another lower high at $10,458 (Sept. 13 high).

With the failed breakout, the bearish view put forward by Sept. 6’s big red engulfing candle has gained credence.

BTC risks falling back to the Sept. 11 low of $9,855 in the short-term. A violation there would open the doors for $9,320 (Aug. 29 low).

A few observers are calling for a deeper drop to levels below $8,000. That possibility cannot be ruled out as the cryptocurrency is looking heavy on the longer duration charts.

Monthly and weekly charts

The back-to-back inside bar candlestick patterns on the monthly chart (above left) indicate buyer exhaustion following a stellar rally from $4,000 to $13,880.

A bearish “inside bar” reversal would be confirmed if prices close (UTC) below $9,049 – the low of the first inside bar created in July – on Sept. 30.

Further, a negative reading on the weekly moving average convergence divergence (MACD) indicates scope for a deeper pullback.

The bearish case would weaken if prices rise above $10,956 (Aug. 20 high), invalidating the lower highs setup on the daily chart.

That said, a weekly close (Sunday, UTC) above $12,000 is needed for bull revival, as discussed last month.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View