Bitcoin’s recent 42% rally may have prepared altcoins for a new upcycle.
Last week Bitcoin’s (BTC) price action surprised the majority of the market and traders are now looking closely at altcoins to spot similarities that might signal a new altcoin market cycle.
Daily crypto market data. Source: Coin360
As Bitcoin surged, China-based altcoins began to break out of their downtrend and showed some significant increases. For example, altcoins like NEO rallied 101% and Ontology (ONT) quickly gained 128%.
Let’s have a look at the altcoin market for an overview.
Altcoin market capitalization breaks the downtrend
Total Altcoin Market Capitalization. Source: TradingView
The total altcoin market capitalization broke out of a 4-month long downtrend and falling wedge structure. The market capitalization also provided a double bottom pattern at the $60 billion level and it managed to keep this support. Following the double bottom structure, a break to the upside occurred.
Similar signals were given before the last small ‘altcoin cycle’, beginning in February/March this year. During that period, a downtrend was broken through the similar construction of a falling wedge which resulted in a multi-month upwards cycle for altcoins.
Given the recent breakout to the upside, a conclusion can be drawn that a new higher low was made in the market. this means the market is moving in an uptrend since the low in December 2018. If the altcoin market capitalization can hold the $66-60 billion range and consolidate here, a new wave to the upside with a target at $125 billion can be expected.
Bitcoin dominance shows strength
Bitcoin Dominance chart. Source: TradingView
Different signals are being shown from the Bitcoin dominance chart. The dominance chart made a strong bounce from the trendline, which started in April 2019 as Bitcoin started its upward trek to the temporary top at $13,900.
Still, the bearish divergences are there since the local top, which could state that the dominance won’t be making new highs. As discussed previously, divergences generally mark a potential top and bottom formation. Below, the red rectangles show the previous examples can be found from these formations and every altcoin cycle has been marked through these.
What would be interesting to see for altcoins would be whether the dominance chart is able to break the uptrend to the downside. If that happens, altcoins are likely to benefit from that movement.
Altcoin Dominance chart. Source: Cointrader.pro
Surprisingly enough, the altcoin dominance chart is still holding on to the trendline. The most recent movements show similarities with the movements at the beginning of 2016 and 2017, through which a retest like this occurred as well. After this, altcoins started to rally.
Ether finds crucial support at $160
ETH USD daily chart. Source: TradingView
As Ether (ETH) is the biggest altcoin, the chart is showing a pattern that is identical to the movements of the total altcoin market capitalization. Ether can also be described as a leading indicator of future movements of altcoins.
The altcoin made a double bottom pattern at the $155-160 support area, within a falling wedge structure. This double bottom pattern led to a high volume bounce, after which the price continued to range around $185.
This is a crucial level, as we can see in the history of the chart. During the first part of 2019, this price level remained a strong resistance prior to the breakout in April. Finding support on this level again gives strength to the market.
This is because Ether is making another higher low as the lowest level is $80 from December 2018, which is an essential part of an upward trending market. Over the coming weeks and months, it will be crucial to see some continuation to the upside for more confirmation. However, it’s unlikely to expect a drop below the $155 area after the current bounce upwards.
Ether/ BTC pairing stuck in a downtrend
ETH BTC daily chart. Source: TradingView
Clearly, the downtrend is still active and valid on the Ether/BTC pair and this didn’t break out of the downtrend.
A major mark for the altcoin market would be to see Ether breakout of this pattern, as it has been a downtrend for almost a year.
ETH BTC 3-day chart. Source: TradingView
As shown by the 3-day chart, some similarities can be seen with the fractal from the start of 2017. During that period, Ether formed a bottom with bullish divergences prior to the big movement upwards.
Right now, this pair provides similar bullish divergences on the higher timeframes, marking a potential bottom and ranging around the downtrend. A major signal to the altcoin market would be given if Ether successfully broke out of this downtrend and generated significant volume alongside that breakout.
Asian altcoins lead the way
Last week President Xi Jinping called for China to support the development and adoption of blockchain and a serious breakout from the majority of Chinese altcoins took place. As mentioned earlier, some gained more than 100% in less than 24-hours. NEO is a perfect example.
NEO USD daily Chart. Source: TradingView
NEO made a falling wedge pattern with a double bottom structure (similar to Ether) at the exact same level as the area in January 2019. A full retrace was made from the first cycle to confirm support. This led to a big breakout a few days ago and a move of more than 100%. If NEO is able to hold the $9.50 – $10 area as support, continuation can be expected.
However, a serious question must be asked. Are altcoins ready to follow the China-based coins or is it only particularly the Chinese market that is making these movements?
From a technical perspective, multiple altcoins show signals of potential bottoming and are eager to show some movements. Another example is Cardano (ADA).
ADA USD 2-day Chart. Source: TradingView
Cardano broke out of the same structure as many altcoins, however, it still lags behind the Chinese altcoins. Currently, the signals are similar to the signals provided earlier this year and the price is hovering around the same areas as back then.
If Cardano is able to hold above $0.04 for support and clear the $0.045 resistance zone, continuation to the upside can be expected.
Given that the majority of altcoins show the same chart and generally move together, further movements of other altcoins can be expected.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.