Recent surges from large caps have been in the double digits with Dash (DASH) surging 50% and Bitcoin Cash (BCH) 30% in the past four days. Is it possible to draw a conclusion that the altcoin market capitalization is potentially bottoming? Let’s find out.
Crypto market daily performance. Source: Coin360
Altcoins retraced to their cycle lows
Many altcoins have reached their cycle low levels, which means that many of them hit levels not seen since before the bull market in 2017, and some have even dropped to their January 2016 levels. One example is Dash.
Dash BTC 5-day chart. Source: TradingView
Markets tend to move in cycles, through which data accumulates from previous periods. The Dash chart is showing a cycle low in 2016 at the green rectangle.
A similar level and bounce are spotted from this price through the past weeks, combined with bullish divergence. This bullish divergence was also spotted on smaller time frames in January 2016.
XMR BTC 5-day chart. Source: TradingView
At the same time, a full retrace to these levels is not always necessary. It can also retrace towards the cycle lows in 2017. An example of such a chart is Monero (XMR). This privacy-focused coin retraced back to the first support of the last cycle, found around 0.00600000 satoshis.
The same phenomenon is spotted here, which means that there’s another bullish divergence marking a local bottom.
So is a new cycle is going to start? If we would do a survey of sentiment between regular altcoin investors, then it would currently be “depression,” as the majority of the altcoins have been crushed in the last months against their BTC pair.
Moreover, a similar view is found on USD pairs with XRP (XRP), in particular, demonstrating major weakness in recent months.
XRP USD 5-day chart. Source: TradingView
XRP lost major support at $0.30 and retraced towards the next major support, seemingly the last “crucial” one. The same views were found in the previous cycle, through which similar support was tested before continuation and a bull market started. That period was in January 2016 when the breakdown occurred, and now it’s January 2020.
Bitcoin in the process of finding a cycle low
Remarkably, the best period for altcoins is when Bitcoin makes a slow, upwards grind. People tend to have Bitcoin as their safe haven and trade altcoins a bit more. However, when Bitcoin starts to turn parabolic (like we saw in June 2019), altcoins are being sold for Bitcoin. And when Bitcoin decides to move downwards, people and traders sell their cryptocurrencies for USD.
Hence, Bitcoin has to now find a cycle low for altcoins to gain some upward momentum.
BTC USD 5-day chart. Source: TradingView
Given this chart, the price of Bitcoin hit a 4-year old trendline and bounced from it. Aside from that, the golden pocket Fibonacci ratio held as well, which is showing signals of a possible bottom formation.
Similar, in January 2016, a bottom formation was found as well, which gave altcoins freedom to grow, as the price of Bitcoin was making slow movements to the upside.
A similar thought and expectation could be the case here, in which Bitcoin is slowly grinding upwards in the coming months, giving altcoins space to continue.
Long-term downtrends break to the upside
Another significant sign is the stoppage of downtrends. Some large caps have broken out of their 2-year old downtrends while some of them still have to break upwards. One example is Bitcoin Cash.
BCH BTC 5-day chart. Source: TradingView
This chart shows that the price broke a 2-year old downtrend, which could signal the start of an uptrend from here. A similar breakout is seen in the Ethereum Classic (ETC) chart, though, admittedly, Ether (ETH) is not quite there yet.
ETH BTC 4-day chart. Source: TradingView
Nevertheless, Ether is close to breaking it. If we analyze this chart, it shows that ETH fully retraced to the 2016 lows as well. Additionally, the low in September 2019 at 0.01645000 satoshis marked a bullish divergence.
This pattern also marked the beginning of previous bullish reversals. For example, as of January 2016, a slightly higher low led to a breakout of the downtrend, comparable with the movements of January 2017 and January 2018.
Thus, another 2-year old downtrend is on the table here, ready to be broken to the upside. If that occurs, a significant move should occur for altcoins if the biggest altcoin finally breaks out of its downtrend.
Indeed, the first quarter of the year once again looks like a good period for trading altcoins. In fact, Ether has been reversing these downtrends almost always in Q1.
Total market cap eyes potential breakout after a retest
Total altcoin market capitalization chart. Source: TradingView
A significant sign is a bounce in the green zone from the total altcoin market capitalization. This level was the support zone in 2017 before the big bull market. The level also served as support in April 2019 before the significant surge of altcoins occurred (and ETH rallied towards $360).
However, the total altcoin capitalization needs to show strength and break the downtrend. If that occurs, total altcoin capitalization could then see $80 and $125 billion as the next levels.
Total altcoin market capitalization chart of 2015. Source: TradingView
A similar retest occurred from November 2015 to January 2016, the last cycle’s low. A retest was necessary to confirm support before the altcoins started to make their moves.
Therefore, there are more arguments for potential long entries and possible bottom formations on altcoins rather than further downwards pressure. However, the crypto market is highly unpredictable, so tread carefully. If Bitcoin decides to make a move towards $9,500, altcoins may likely be crushed further against their BTC pairs.
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.