Why Traders Should Chart the Entire Crypto Market Cap

bitcoin-trading

Market capitalization receives a lot flack for being a bad metric to gauge the worth of a cryptocurrency — and perhaps rightly so — but that should not stop traders from using it as a tool to create a market bias.

 

To summarize: the market capitalization of a cryptocurrency is a function of market price multiplied by the circulating supply, so its varying value ends up visually mimicking that of cost action when plotted on a price chart. And if it imitates cost action, then technical evaluation — the analysis of market behavior via cost movement — can be applied to it just as though the cost chart for bitcoin (BTC) has been being examined.

 

It is no secret that cryptocurrencies are highly speculative resources that bank on the widespread adoption of blockchain and dispersed ledger technology (DLT). Since the whole market is so reliant on the success of the factor, it is uncommon for the tendencies of individual cryptocurrencies to deviate too far from one another for too long.

 

To put it differently, they are highly correlated, so if one cryptocurrency goes up or down in price, others are probably likely to follow.

 

For your swing trader or long-term investor who doesn’t care about intraday price changes, charting the complete market capitalization of cryptocurrencies or simply other cryptocurrencies (altcoins) may be an insightful approach to analyze the long-term tendency or prejudice of the broader marketplace.

 

As it happens, the whole capitalization of the altcoin market is in an interesting technical juncture that could soon lead to a different boom or bust for the current market, which is further examined below through the use of technical evaluation.

 

Weekly Chart

 

If we do a simple technical evaluation of the complete capitalization of the altcoin marketplace and connect the two key peaks in 2018, a long-term diagonal downtrend line is made.

 

In technical analysis, breaking a trendline to the upside is a bullish sign and hints that the overarching trend is starting change. The longer-term the trendline, however, the harder it is to break.

 

As can be seen from the above weekly graph, the capitalization came quite near touching the trendline but has since pulled back, as indicated by the visible upper back.

 

Looking at weekly candlesticks from January and May, another rejection in the trendline could lead to some substantial sell-off, whereas a weekly close above the trendline would indicate the long-term tendency of this altcoin market is starting to change from bearish to bullish.

 

Daily Chart

 

While the weekly graph displays a significant resistance hurdle that should break for a longer-term market trend reversal to occur, the daily chart shows a nearer-term perspective on the outlook of this current market, which has its own obstacles.

 

The pattern emphasized in the above chart is referred to as a reverse head and shoulders pattern that’s a common ‘bottom’ or reversal pattern.

 

The pattern consists of three successive troughs, with the original and the third being comparable in diameter and thickness yet more shallow than the middle trough, called the head.

 

For the alteration to take effect, the market capitalization would have to find acceptance over the neckline that was made by linking the peaks on each side of the head with a trendline.

 

If successful, the thickness of the head could be added to the breakout point to specify a possible target. The thickness of the head is $34 billion, so if we add this to an expected breakout point, the market would have the capacity for a 31 percent growth towards $141 billion in the not too long.

 

The Fibonacci retracement levels can be utilized as intermediate resistance levels, the closest of which is the 0.382 retracement near $114 billion.

 

The graph for market capitalization imitates that of cost action and may be used to offer a broad perspective on the whole sector.

 

Finding acceptance over the reverse head and shoulder neckline would produce a mid-term goal for $141 billion, whereas breaking the weekly downtrend would indicate that a longer-term bearish to a bullish fashion shift.

 

Another rejection from the weekly downtrend would raise the prospect of a broader market sell-off.

 

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The leader in blockchain news, CoinDesk is a media outlet that strives for the greatest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

 

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