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Bitcoin will determine the overall health of the cryptocurrency market

Publication Date: 26 Apr 2018 - By Market Mogul By Market M.

Macro FX & Rates Cryptocurrencies Financial Services


Over the past year, altcoins have served as a hedge for Bitcoin (BTC). However, in the recent months of February and March, the price movements of cryptocurrencies have been correlated with BTC as the vast majority of both major and minor altcoins recorded similar gains and loss patterns with extreme volatility.

Source: Coinmarketcap

Emin Gun Sirer, director of IC3 and professor at Cornell University, tweeted:

“Indeed, a mature market should be decentralized, with independent coin prices decoupled from each other, each moving in concert with the future prospects of the specific coin.”

The price of BTC is not only significant in itself, but also to the overall perception of the cryptocurrency market. The latest correction has been the worst since the 70% corrections seen in 2013 and 2014 that saw BTC’s price drop from $233 to $67 and from $867 to $439 and each took about a year to recover.

On April 12, BTC saw a major bullish breakout above the $7,000 level that, at one point, saw close to a 20% gain, closing the day above $7,500, confirming a falling wedge reversal. The question now becomes what direction BTC will take.

The Potential for More Upside

In the short-term, BTC/USD is on track to test previous resistance lined up at $8,895, with its 23.6 percent Fibonacci Retracement levels as shown in Figure 1. From a longer view, BTC/USD is currently witnessing a double-bottom pattern forming, a bullish sign for an upward breakout. The recent price rise close day (green candle) has confirmed that this is not a fake out. What is important now is to validate whether RSI, a momentum indicator, can find support above 60, which would be a major bullish sign for further upside and test resistance at $9,545.

As seen in the BTC/USD RSI (relative strength index) chart in Figure 1, when RSI was below 60, BTC entered bearish territories and when RSI was below 40, there was a sign of reversal. BTC last saw RSI above 60 back in November 2017, when BTC saw a 233 percent rise. The long-term hurdle that will confirm if BTC has re-entered the bullish territories will be if BTC can break through its 38.2 percent Fibonacci retracement level at $11,025, which BTC previously found heavy resistance back in February and again in March that saw a double-top pattern formed, a bearish sign that broke out downward.

Figure 1. 1D, BTC/USD

Source: Tradingview

The Potential for Further Downside

While BTC may have broken through its bearish cycle with a 7-week high, the direction of the cryptocurrency market is still subject to further downside. In order for the previous pattern to play out, one should see additional money or new money entering the market. Figure 2. shows that the recent influx of long holding participants has been taking profits from the recent rally.

Figure 2. 1D, BTC/USD Longs

Source: Tradingview

Instead, BTC/USD is currently showing a similar trend pattern to that of 2014, when BTC witnessed an exponential spike of close to 500%, before entering a bear market. There is a resemblance between the 2018 BTC/USD chart patterns seen in Figure 1 and the 2014 patterns seen below in Figure 3, where a Double-Top pattern is formed resulting in breaking below its 38.2 percent Fibonacci retracement levels. BTC then witnessed a Double-bottom pattern that formed and tested previous Fibonacci resistance lines at $437.2 before BTC witnessed another 62% correction that saw its price drop from $473.5 to lowest of $167.0. Therefore, one cannot factor out that if the 2018 BTC/USD price level would follow a similar pricing pattern, BTC could see another bearish breakout before a reversal.

Figure 3. 1D, BTC/USD

Source: Tradingview 

Final Thoughts

The main difference between the cryptocurrency market back in 2014 and now in 2018 is the rise of altcoins. As of now, BTC still has a significant importance to altcoins because large exchanges only allow the pairing of coins to BTC, ETH or USDT. This is also why the majority of coins are valued in terms of Satoshi values instead of fiat conversions. However, this is now subject to change as Bitfinex has already begun to introduce fiat trading pairings and both Binance’s recent announcement that it is making plans to add fiat into its crypto trading pair and Coinbase’s plan to introduce more ERC20 tokens to their platform is a very bullish sign that one will eventually see a higher dominance from altcoins in a foreseeable future.

But in the current cryptocurrency market state, it is as Elizabeth Stark, co-founder of Lightning Labs sums it up:

“Now, I feel like we’ve entered into a ‘bitcoin, not blockchain’ world, where people understand the value of cryptocurrency technology and what these can bring.”

This post first appeared on The Market Mogul.


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