Bitcoin-dominance-chart-incl.-bull-market-2017-Elliott-wave-theory
Blockchain & cryptocurrencies

Are Altcoins On The Verge Of A Breakout?

The cryptocurrency market has been booming in the last few days, so I will focus on this asset class this week. Many of you may have recognized Bitcoin’s decent rally. In just one and a half months, it has almost doubled its value from around $10,000 per Bitcoin at the beginning of October to almost $18,000 per Bitcoin today. Especially in the last week, I have heard people ask why altcoins, like Ethereum, XRP, Bitcoin Cash or Litecoin did not perform in a similar way and almost remained flat. Here is what I think.

What is an altcoin / altseason?

If you are not familiar with the terms “altcoin” or “altseason”, here is a little explanation. The term altcoin in the cryptocurrency market describes every other cryptocurrency besides Bitcoin (alternative coin). Thus, all other cryptocurrencies, e.g. Ethereum, XRP, Cardano, Tron or whatever are alternative coins (so-called altcoins). And an altseason describes a period in which these altcoins increase their value significantly. If you have been in the cryptocurrency space for a couple of years, you have experienced such rallies, and you know very well that altcoins have significantly outperformed the market leader Bitcoin during an altseason. However, before we examine when these altseasons usually take place, we will take a closer look at the Bitcoin dominance chart.

The Bitcoin dominance chart

In the following you will find the Bitcoin dominance chart, which reflects Bitcoin’s market share of the total market capitalization of the cryptocurrency market.

Bitcoin-dominance-chart-incl.-bull-market-2017
Bitcoin-dominance-chart-incl.-bull-market-2017, log-scale; source: Tradingview

Currently, Bitcoin’s market share resides at the top of a downtrend channel in the region of 66-67%. I have marked the last bull market of cryptocurrencies from 2017 to early 2018 in the chart, and as you can see, Bitcoin’s market share has dropped from around 96% to 35% during that time. Thus, altcoins significantly gained market share during the last bull market. Does this mean that the price of Bitcoin has fallen during this time? No, it does not. In fact, the price of Bitcoin rose from about $1,200 to its all-time high of $20,000, but this means that the entire altcoin market significantly outperformed Bitcoin and thus gained more market share. Please remember the dates February 27th, 2017 and January 8th, 2018, between which Bitcoin’s dominance declined dramatically. We will look at these dates again later in this article.

If we apply Elliott wave theory to the same chart, you can see that the fall of Bitcoin dominance followed an A-B-C correction (blue). This correction was then followed by a 1-2-3-4-5 Elliott impulse wave (orange), in which Bitcoin regained dominance up to 73%, which is the result of the recent bear market.

Bitcoin-dominance-chart-incl.-bull-market-2017-Elliott-wave-theory
Bitcoin-dominance-chart-incl.-bull-market-2017-Elliott-wave-theory, log-scale; source: Tradingview

But since this 5-wave structure to the upside is completed and since Bitcoin’s market share resides at the upper trend line of the channel, which it has not been able to exceed for more than a year, I expect Bitcoin’s dominance to follow another corrective cycle following another A-B-C correction pattern. The main question is how low Bitcoin’s dominance could actually fall and whether it will touch the lower trendline of the trend channel again. In this case, Bitcoin’s dominance would drop to as low as 25%.

Furthermore, if we apply Fibonacci analysis to the Bitcoin dominance chart, it is obvious that the fifth Elliott wave was stopped exactly at the 0.618 Fibonacci retracement level. Thus, the entire 1-2-3-4-5 Elliott impulse wave can only be considered a retracement, but not a breakout to the upside. To confirm a breakout, it would first have to pass through the 0.786 retracement level or a dominance of around 84%.

Bitcoin-dominance-chart-incl.-bull-market-2017-Fibonacci-analysis
Bitcoin-dominance-chart-incl.-bull-market-2017-Fibonacci-analysis, log-scale; source: Tradingview

Thus, both methods provide a strong indicator that we are on the verge of a further decline in Bitcoin dominance in the cryptocurrency market. This could either be the result of another altseason or a dramatic drop of Bitcoin’s price, while altcoins are able to defend their price level. But when did an altseason actually take place during the 2017 bull market?

When do altseasons take place?

To identify that, we need to look at what happened to Bitcoin in the week of the February 27th, 2017. In the following you will find the Bitcoin price chart including the entire market cycle between the all-time high (ATH) of ~$1,200 in 2013 and the current all-time high of ~$20,000 in 2017.

Bitcoin-price-chart-incl.-breakout-2017
Bitcoin-price-chart-incl.-breakout-2017, log-scale; source: Tradingview

Based on that, it is obvious that a weekly closing, which exceeded the previous all-time high of $1,200 per Bitcoin, seems to have triggered an altseason. This event took place right in the week of February 27th, 2017. While Bitcoin entered a short-term correction of 25% before continuing its further growth towards $20,000 (another 1,500% price increase), altcoins began to massively outperform the market. This can be visualized by the chart for the total altcoin market capitalization (= total market capitalization of all cryptocurrencies excluding Bitcoin).

Total-altcoin-market-capitalization-chart-incl.-breakout-2017
Total-altcoin-market-capitalization-chart-incl.-breakout-2017, log-scale; source: Tradingview

Immediately after Bitcoin exceeded its previous all-time high, altcoins began to surge in price, leading to an increase of the total altcoin market capitalization of astonishing 60,000% in one year. And when did the altseason end? Exactly in the week of January 08th, 2018, which was the end of the bull market and the beginning of a long, devastating bear market.

Moreover, it can be identified that altcoins remained almost flat in a sideways movement for a period of 8 months before Bitcoin exceeded its previous all-time high, and that the value of Bitcoin almost doubled over the same period.

Will Bitcoin trigger another altseason?

At the time of writing, Bitcoin resides at a price level of around $17,800. Therefore, only a price increase of about 11% is necessary to regain Bitcoin’s all-time high again. Will this trigger another altseason? I don’t know, but given the technical chart analysis and the similarities we are currently experiencing, I think it is very likely:

  1. Technical analysis implies that we have reached the peak in Bitcoin dominance and that a correction is imminent.
  2. Bitcoin has almost doubled in price in the last months, while altcoins remained almost unchanged in a sideways movement (similar to 2017).

A decline in Bitcoin dominance due to a price correction seems less likely, following the overall long-term market trend and cycle analysis, which I have shared in my price prediction for Bitcoin already. In the short-term, however, a pullback and longer period of price consolidation in the market still seems reasonable before we reach new all-time highs again. Let’s find out together what will happen when Bitcoin reaches a new all-time high.

What is your opinion? Do you think that another altseason is just around the corner? Or will we experience a longer consolidation period first. Leave me a comment. Subscribe to my newsletter or follow me on Twitter if you would like to get a notification when I publish a new article. You may also like:

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2 Comments

    • tao-investing

      Hi Brittney,

      thanks for your comment. Unfortunately, I do not provide investment advice or recommendations, just my personal view of the markets based on technical trend analysis. If you take a look on the bigger picture, the cryptocurrency market as a whole appears to be entering a new bull cycle, but in the end no one can predict the market with certainty and the cryptocurrency market in particular is very volatile. Therefore I recommend you to only invest money, that you can afford to loose or that you do not need in the short- to mid-term.

      Best regards
      Raphael

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