I had to do some work on my website this week to improve website quality and user experience, due to that I did not publish another article. But since the cryptocurrency market has still been exciting in the last few days, I will take another look at this market today.
In my recent article on the cryptocurrency market (Are Altcoins Already Breaking Out?), I mentioned that we might experience a double-top structure on the Bitcoin dominance chart, which could be the result of Bitcoin surpassing its all-time high, to finally trigger an altseason. This statement is still valid. But apart from that, I also mentioned a potential correction before Bitcoin reaches new highs.
Is the correction already over?
We have already experienced a wild correction during this week. Although the market is surging in price again, I think that we could be experiencing a false breakout right now and that we could see another correction in the market. This would bring the price of Bitcoin down to even lower levels and shake out week hands in the market. Bitcoin almost reached its previous all-time high of $19,658 (Bitstamp chart), but then turned around at a price of $19,491, only $150 below all-time high. On Thursday this week (November 26th, 2020), Bitcoin lost more than $2,500 or about 13.5% within only a few hours (!). Of course, the whole market followed this correction, and some of the major altcoins like XRP, XLM, ADA or LTC lost up to 30% on the same day.
The drop in price was stopped by a resistance level (blue line) back from 2017 and testing this level now and confirming it as a support level is an important step to confirm the overall bullish trend in the market. I consider this correction as healthy and sufficient for that. In fact, we saw similar behavior in 2017 before Bitcoin broke out to new highs, but Bitcoin fell almost 35% in price at that time, compared to only 17% during this week. In addition, Bitcoin had tested a mid-term high from June 2016 for the first time, after it had broken out above this level.
So, is there another correction ahead of us? I think it is very likely that we will experience another correction and that we could retest even lower levels again. If we assume that Bitcoin will follow the chart structure from 2017 and that it will fall about 35% in price in total again, Bitcoin’s price would drop to a level of about $13,000 before resuming the uptrend. In this case, the highs from June 2019 would be tested again, which was the mid-term high of the recent bear market.
These June 2019 highs have not yet been tested after the breakout, and from chart and technical analysis point of view a test of this level would result in a chart structure similar to the chart structure from 2014 to 2017. Thus, I think it is a likely scenario, and even a drop of Bitcoin’s price into the $13,000 range would not change the overall bullish outlook for Bitcoin, as long as this level holds and can be confirmed as a support level.
Could altcoins correct similarly?
Usually the entire cryptocurrency market tends to follow the market leader Bitcoin. But during the last couple of weeks, when Bitcoin surged to price levels close to all-time highs, altcoins remained in a sideways movement. Only in the last two weeks, before Bitcoin’s upward trend was stopped, altcoins began to explode.
But although Bitcoin’s price is currently close to all-time highs, most altcoins are still 70-80% down from their all-time highs. Therefore, the market is unbalanced and altcoins are still considerably cheaper compared to Bitcoin. In addition, altcoins have just passed their mid-term high of June 2019, which can be seen in the chart for the total altcoin market capitalization.
I think if Bitcoin corrects to its mid-term high of June 2019, altcoins will follow to test this level again. For both Bitcoin and the altcoins, this would result in a 30% decline from current price levels, which would re-balance the market in terms of prices. Furthermore, a test of these levels can be considered bullish, as long as these levels hold and can be confirmed as support levels.
For this reason, I will take a close look at Bitcoin and its performance in the coming days. If it continues to break out into the $19,000 region, I think another correction becomes increasingly unlikely. Until then I will hesitate to continue investing in the cryptocurrency market. A correction of the market to the highs of 2019 could trigger a lot of fear in the market, which I consider as a buying opportunity.
What do you think, will we experience another correction before the market breaks out to new all-time highs? 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: