Signs of increased volatility are emerging as the closing time of the monthly Bitcoin (BTC) candle approaches. With the much-anticipated Chicago Mercantile Exchange futures contract and Deribit options expiration just four days away, the near-term direction of BTC remains uncertain.

The three reasons for the expected spike in volatility next week are the prolonged consolidation in BTC, key resistance levels above and the sizable expiration of BTC futures and options contracts.

Bitcoin consolidates for nearly a week

On August 17, the price of Bitcoin hit a new high for the year at $12,486 on Coinbase. Since then, the price has been consolidating in a tight range and has been unable to break above $12,000 again.

High volatility tends to occur when Bitcoin consolidates for long periods of time without the price moving significantly in either direction. Since August 19, the price of Bitcoin has remained in a tight 4.5% range for BTC.

BTC/USD nears key support level. Source TradingView.com, Mayne.

A pseudonymous trader named “Mayne” says that support at $11,650 is critical for BTC in the near term. Referring to the support range of $11,650 to $11,730, the trader said.

“If we can hold the grey, the wick entry could be long entry. I think we’ll push up to $121k. Lose grey and flip to $11.1k.”

Option expiry date approaching

While open interest in the Deribit bitcoin options market is not as high as it was in June, there were $500 million worth of options open on the August 28 contract.

The simultaneous expiration of options and futures contracts in August could cause significant volatility in bitcoin prices. One options trader said.

“While not as high as in June, there is still a little over $0.5 billion in BTC options OI on 28AUG20 on Deribit at the moment.”

Josh Olszewicz, a popular cryptocurrency technology analyst, suggested that the expiry of CME bitcoin futures could also lead to intense price action. He said.

“CME BTC futs [futures] rolling this week. Watch out for increased shenanigans.”

Bitcoin futures contracts on CME that face expiration

Bitcoin futures contracts facing expiration on the CME. Source by Josh OlszewiczJosh Olszewicz.

Bitcoin needs to overcome the $11,900 resistance level

Since the beginning of August, the price of Bitcoin has twice refused to reach the $11,900 level, both times followed by a relatively large sell-off shortly after.

In the past 24 hours, Bitcoin has once again refused to move from the $11,800 to $11,900 resistance zone. If BTC continues to fall in the short term, it could print a lower high pattern on the lower hourly chart.

The fundamentals have fallen back slightly

According to Glassnode’s researchers, the chain’s fundamentals have fallen slightly over the past week. They said

“Week 34 saw a slight decline in bitcoin chain fundamentals. the GNI fell by 6 points, from 71 to the current level of 65. This was largely due to a decline in the sentiment sub-index, while network health and liquidity also declined slightly.”

The confluence of a small decline in fundamentals, long-term consolidation, option expiry and key recent resistance raises the chances of a major price reaction.

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2020-08-25