Bitcoin price has been trading within an increasingly tightening range, consolidating and coiling up ahead of the asset’s next explosive move. Analysts are mixed on the direction and have begun looking into past data to make sense of what’s to come.
Past data shows that the leading cryptocurrency by market cap typically pumps out of consolidation, and when it does, a minimum move of 20% or more usually follows.
Stagnant Sideways Trading Is Ready To End, When Will Cryptocurrency’s Notorious Volatility Return?
The cryptocurrency asset classed earned itself plenty of notoriety due to the wild price swings commonly found throughout the market.
Bitcoin’s parabolic surge from $1,000 to $20,000, then back to $3,000 is the perfect example of this. Those peaks and troughs happened in less than two years apart from one another, so it is uncommon that the asset class trades sideways for extended periods of time.
Bitcoin price is at a critical junction. That comment has been made many times before, but as the asset brushes up against resistance at $10,000 yet again, and trading sideways for nearly two months running, a major move is expected one way or the other.
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When assets consolidate below resistance for so long, its often a sign that resistance will soon break. But $10,000 has proven nearly unbreakable for Bitcoin over the last several years.
Each time it does make it above the key level, a strong rejection occurs. However, data shows that each time Bitcoin has consolidated for this long or more, the first-ever cryptocurrency pumps out of the sideways action, leaving a powerful 20% or higher move in its wake.
Bitcoin BTCUSD Daily Chart | Source:
Bitcoin Tends To Pump By 20% Or More Out Of Consolidation
According to , over the last ten years, Bitocin price has traded sideways for a period of five weeks or more just ten times.
Nine out of the ten times, consolidation didn’t last beyond the 6th week. Before the sixth week has ended, a move of 20% or more has resulted when the consolidation finally breaks.
The one bout of over six weeks of sideways, peaking at a full ten weeks, resulted in a 50% total decline.
Of the remaining nine sideways trading phases, Bitcoin has pumped following a break of the stagnant price action, by 20% or higher.
A 20% pump from current levels, would take Bitcoin price to above $11,250, and break out from downtrend resistance.
Bitcoin BTCUSD Monthly Chart | Source:
But these metrics are on the daily timeframe. Zooming out further, the cryptocurrency may not be ready to break out from longer-term consolidation, signaling that a drop back down to lows is possible.
Looking at past consolidation cycles on monthly timeframes, the asset consolidated for 549 days before breaking out into the first major bull run. After the peak was reached, the asset consolidated again, for a time period almost exactly double the length of the first consolidation phase.
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If each lengthening cycle reduces relative volatility and takes double the time for the cryptocurrency to break out, the asset would have another four years left before a new all-time high is set.
Crypto traders often talk about the max pain scenario. Few investors would argue that the most painful scenario possible, would be another four years of sideways. But this is the cryptocurrency and anything is possible. There’s not enough historical data to truly derive enough conclusive evidence, so all investors can do is speculate and stay sidelined until the direction is chosen.