Crypto Update: Altcoin Season on the Horizon

With so many altcoins posting daily gains between 20% and 100%, many on social media have began to speculate whether we’re about to enter a proper altcoin season. During this season, many mid cap and low cap alts have the potential to grow their market capital by over 500% in a short period of time. On the other hand, large cap coins may possibly revisit recent highs or even print fresh all-time highs. This season is dubbed as the most profitable trading period in the cryptocurrency community.

While the idea of an altcoin season can be exciting, we have to consider that we are still deep in bear winter. That’s why we looked at the charts to gauge the possibility of an altcoin season and what we saw was promising. Here are the reasons why we believe that an altcoin season is on the horizon.

Bounce at Parabolic Support

Many altcoins that recently rallied relied on their parabolic support to offer a boost. We saw this happen in Litecoin (LTC/USD), Ripple (XRP/USD), and even EOS (EOS/USD). With this theme emerging in large cap alts, it is not surprising that the entire altcoin market pulled off the exact same trick.

Back in September 2017, the entire altcoin market rejected levels below $48.87 billion. This swing failure pattern inspired a parabolic run that saw the altcoin market cap climb to over $500 billion in January 2018. Almost a year later, the market cap is back to where the parabolic move started.

Weekly chart of the altcoin market cap

What’s interesting is that the altcoin market cap breached this support in December 2018 when it dropped to $44.84 billion. Fortunately, bulls immediately recovered the support, which sparked a rally to $72.72 billion. This false break down can be interpreted as a bear trap.

While the rally has faded, last week’s price action caught our attention. The market printed above average volume last week, yet the trading range was narrow. This tells us that the price did not go any lower because bulls are absorbing the selling pressure. The presence of buyers at current levels is bullish.  

If the read is correct, we might see the altcoin market cap breaking out from a reversal pattern soon. This will likely mark the beginning of a new altcoin season.

Possible Falling Wedge Breakout

In technical analysis, indicator movement often precede price movement. This is why many traders rely on divergences in terms of volume and momentum. In many cases, divergences forecast the market’s next move.

In the case of the altcoin market cap, the weekly RSI has managed to break out from a large falling wedge. On top of that, the market flipped the diagonal resistance into support. With this indicator movement, we can expect price to follow suit.

Falling wedge in altcoin market cap

If you also consider that we’re trading near the parabolic support, then the likelihood of a break out from the falling wedge increases. Once the market cap takes out the diagonal resistance, we can say that we’ve entered a proper alt season.

Bitcoin Dominance Topping Off

Another reliable indicator of an impending alt season is the Bitcoin Dominance chart. This chart tells us the size of Bitcoin’s slice in the overall cryptocurrency market cap in percentage terms.

A smaller slice does not necessarily mean that capital is leaving Bitcoin. It might mean that new capital is entering the altcoin market. With the overall crypto market cap bouncing by over $40 billion in December, we are convinced that new money has entered the altcoin market. As a result, the Bitcoin Dominance chart appears to have topped off for now.

BTC Dominance

Bitcoin Dominance appears to be forming a descending triangle pattern as it struggles to stay above the 50% mark. After its yearly peak of 58% in September 2018, it seems ready to print a lower high at 52%. This might be the lower high that sparks the breakdown below the 50% support. Below that level, we can expect Bitcoin Dominance to slide as the value of altcoins rises.  

Bottom Line

As altcoins continue to pump on a daily basis, many have wondered whether we’re in an altcoin season. The answer is not yet, but it appears to be on the horizon. The bounce from the parabolic support of the overall altcoin market increases the likelihood of a bullish breakout. This can lead to the decrease of Bitcoin’s dominance in the overall market cap and usher in the beginning of a new altcoin season.

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.