Crypto: When Bullish is Bearish
Sharp moves in the altcoin markets have triggered interest in Bitcoin. Bitcoin has moved higher – at the expense of the broader crypto market.
Bullish can be Bearish
The moves in the altcoin market over the past week have been dominant. At the time of writing this article, the altcoin market cap is up +3.87%, while the total market cap is up +4.80%. This may sound like a positive signal – but it is a dangerous one, and one that we should keep a very close eye on. Ever since Bitcoin’s bear market low back in December of 2018, Bitcoin has had some tremendous growth – but the majority of the altcoin market has continued to remain in a bear market. Some of the most significant gains that Bitcoin has experienced since breaking out of the 2018 bear market have been at the expense of the broader altcoin market. In an ideal world, we would see the entire market appreciate – but that has not been the trend for almost two years.
When compared to Tradingview’s two aggregate cryptocurrency charts, we can see some hidden truths. The TOTAL (total cryptocurrency market cap with Bitcoin) is now outperforming the TOTAL2 (total cryptocurrency market cap excluding Bitcoin) by a margin of greater than +1%. Why is this a bearish condition? Because it means that people are selling altcoins back into Bitcoin. The reasons for this are varied, but historically people will abandon altcoin markets to get out of the cryptocurrency market entirely. What happens is a flight of capital from the altcoin market (TOTAL2) and then into Bitcoin. This may lift Bitcoin’s price action for a while, but ultimately it will come to an end, and then we see Bitcoin begin to decline in both volume and momentum and then prices collapse.
In an ideal and favorable cryptocurrency market, we would observe the TOTAL and TOTAL2 charts to be trading near parity. For growth and significant moves higher, we want to see the TOTAL2 outperforming Bitcoin by a factor of over +3-5%. What we don’t want to see is TOTAL2 underperforming TOTAL, that is a warning sign. And the warning signs are very apparent on the charts.
We reviewed this chart during yesterday’s article, but I want to highlight the critical price levels here. First is the Kijun-Sen, which rests at 70.16 Billion – just a hair above the value of TOTAL2. And above that is the bottom of the Kumo. We’ve already seen clear and strong rejection against that level today. The top of the daily wick is right on the bottom of the Kumo. We may be witnessing a very nasty and tempting bull trap at these levels. Now, this could very quickly turn into a bear trap, but we need to see some healthy increases in volume and participation across the entire cryptocurrency market. Not shown is the TOTAL chart, but price is very close to that chart’s daily Kijun-Sen. We should anticipate price being rejected against that level on the daily chart which would cause a probable sell-off across the entire market. This is definitely a high-risk trading environment at these levels – but enough people were to get trapped trying to short at these levels, and price instead breaks out above the Kijun-Sen on both the TOTAL and TOTAL2 charts, we should see a massive move higher across the entire cryptocurrency market.