Commonly referred to as the altcoin capitalization (ALTCAP), it is currently 70% below its all-time high (ATH) set in November 2021. However, the long-term chart shows that a bullish pattern has been developing for many months, which could lead to the initiation of a strong uptrend.
If this happens, the coming weeks and months could bring a recovery in the altcoin market. Although altcoin capitalization needs to break through several key resistance levels, the target remains the ATH from the previous bull market after breaking out of the long-term pattern.
Altcoin Capitalization Breaks Out of a Falling Wedge
The altcoin capitalization is the total crypto market capitalization, excluding bitcoin. The altcoin capitalization reached an all-time high in November 2021 at $1.71 trillion. Since then, with the start of a bear market, ALTCAP has been in a long-term downtrend.
In June 2022, the chart appears to have reached the bottom of the ongoing cycle at $427.75 billion. It is true that as recently as November and December 2022, the weekly candles closed lower, but no capitulation led to a lower low.
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Since the beginning of 2023, the ALTCAP chart seems to form a bullish structure. This is evidenced by the first higher high (HH) and higher low (HL) relative to the altcoin capitalization levels dropped in late 2022.
At the same time, the weekly chart on a logarithmic scale forms a bullish falling wedge pattern (blue). A falling wedge formation is characterized by a chart forming when the market reaches lower lows and lower peaks with a contracting range.
When this formation occurs in a downtrend, it is considered a trend reversal formation. A contracting range indicates that the downtrend is losing momentum.ALTCAP chart by Tradingview
The breakout target from this pattern, which has been in place for nearly 2.5 years, is the ATH at $1.71 trillion (black line). It is set by projecting the entire height of the wedge onto the breakout point from the pattern.
However, so far, the breakout from the wedge has only led to the formation of a higher high. Subsequently, altcoin capitalization fell again to make a bullish retest of the falling resistance line. This now serves as support.
Interestingly, this retest coincided with validating the horizontal support level at $494 billion (green line). This level has already served as support 4 times (arrows) and represents the range low of the ongoing accumulation.
The price cannot fall below this support level if the altcoin capitalization wants to maintain the uptrend.
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Declining ALTCAP Volume Suggests Impending Volatility
The signals from the daily chart remain largely consistent with the weekly readings. Above all, for price action to be considered bullish, altcoin capitalization must overcome several resistance levels.
These are located at the closes of the key daily candles at $543 billion, $608 billion, and $657 billion (red lines). If the price were to reach these levels, it would be an increase of 4%, 16% and 25%, respectively, relative to the current price.
On the other hand, the key support remains in the $494 billion area (green line). Its loss could lead to a retest of the late 2022 bottom at $437 billion.ALTCAP chart by Tradingview
Important signals are coming from the trading volume signature and RSI. The volume bars have steadily decreased since March 2023 (blue line).
This signifies the ongoing compression of the trading range and the upcoming increase in volatility. Whether ALTCAP moves sharply towards resistance or support will determine the direction of the future trend.
The Relative Strength Index (RSI), on the other hand, is giving moderately bullish readings. This is because back in mid-September, the RSI made a bearish test of the key 50 line.
The Relative Strength Index (RSI) is a favorite among traders for assessing momentum to guide their asset acquisition or disposal decisions. When in an uptrend, an RSI reading surpassing 50 is deemed optimistic for bullish traders. Conversely, a reading beneath 50 is a bearish indicator.
However, it has since generated a higher low and surged higher. If the indicator crosses the 50 level (blue circle) and moves into bullish territory, it will confirm the continuation of the uptrend.
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