Bitcoin (BTC) volatility has once again got traders concerned as the price has been relatively stable over the past few weeks with no clear direction. The sell pressure on BTC/USD has yet to subside as a large number of bears still believe the price to fall in the days ahead. However, for traders a decline in volatility means less trading opportunities. If the price trades in a tight range for a long time, there is not much to do. Similarly, investors are concerned that the price could rise or drop sharply without giving them enough time to prepare for such events. As we have seen in the last few weeks, the number of margined shorts has piled up but the price does not seem to be ready for a move to the downside. In fact, if BTC/USD rises towards the 38.2% fib retracement level, things could get bad for the bears in no time.
The probability of a move towards the 38.2% fib retracement level is very high because the 21 Week EMA is a level where the price can be expected to face a strong rejection for a steady decline. If the price rises towards the 38.2% fib level and then faces rejection to close below the 21 Week EMA, we will have a strong confirmation that the price has topped out for now and is ready for a strong decline in the weeks ahead. However, for the bears that already have high leverage margin positions opened, this move towards $4,500 has a strong probability of wiping them out. As their positions are liquidated, we will see a rise in the price of Bitcoin (BTC). The Bitcoin Historical Volatility Index (BVOL) is also falling which means moves to either side would be quick and unexpected for the most part.
The daily chart for Bitcoin Historical Volatility Index (BVOL) shows that the index has fallen below the 50 day moving average which is a strong indicator of its future direction. If it closes below the 50 day moving average as we expect it to, we will have strong confirmation of a sharp decline in volatility. This decline in volatility will make a lot of traders concerned and we will see a subsequent decline in the number of margin positions on exchanges like Bitmex and Bitfinex.
The volatility of Bitcoin (BTC) has yet to drop to an all-time low. So far, we have not seen this happen. This is why we expect the volatility to drop in the weeks ahead to reach its all-time low around April, 2019 during which time we expect BTC/USD to reach its true bottom. Bitcoin (BTC) is down more than 80% from its all-time high but that does not mean things could not get worse. Bitcoin (BTC) is still overbought on the weekly time frame and we expect the price to decline sharply after a few short lived rallies to the upside in the days and weeks ahead.