Wider cryptocurrency recovery could be imminent after bullish bitcoin break
Bitcoin breakout could set precedent for a wider cryptocurrency resurgence, with litecoin, bitcoin cash and EOS all providing potential reversal opportunities after months of declines.
Can bitcoin rally set wider precedent for crypto recovery?
Bitcoin has managed to break higher following a six-month pullback, with the rise through $9926 seen last week providing us with a bullish breakout signal for the coming months. That rally completes the breakout from a bullish falling wedge formation, pointing towards further upside to come. The weekly chart below highlights the losses we are starting to see emerge, with the market now showing potential to shift into a downward retracement before the bulls come back into play once more.
However, whether that wider pullback comes into play or not remains to be seen, with the price having declined back into a confluence of Fibonacci (76.4%) and standard deviation channel support. A decline below the $9080 support level would bring about a bearish outlook for the coming period, with the price likely to retrace some of the wider rally from $6436. However, that is not a given, with the uptrend in place throughout 2020 thus far providing a clear bullish outlook that holds unless we see that breakdown below $9080. In either case, the break through $9926 does seemingly pave the way for a wider bullish breakout, with the crypto space looking attractive after six months of declines.
Early 2020 gains breathe life back into cryptocurrencies
Given this bullish breakout for bitcoin, there is likely to be an increased focus on the alternative coins as a potential area for growth. The graph below highlights the gains we have seen thus far this year, with ether leading the way after seeing 103.8% upside since the turn of the year. What is stark here is that the gains for bitcoin have been significantly less than some of its other major peers, with the 35.3% upside proving more modest than many others.
This should come as no surprise, given that bitcoin is perceived as the most stable of the cryptocurrencies. This will typically mean that market moves are amplified for smaller coins in comparison to bitcoin. That works on all fronts, with bitcoin having lost less in this sell-off, but also having gained the least and standing to gain the least should we see these markets return to record highs.
The graph below provides us with an idea of why many are attracted by some of the alternative coins within this recent recovery, with the distance to record highs proving substantially larger for some markets compared to others. Particular attention will be paid to bitcoin cash, stellar and NEO. Remember, there is no guarantee that those record highs are attainable, given the peaks seen around January 2018 often seen as the height of a bubble.
However, with record highs for bitcoin providing 104% compared with the 1235% in NEO, it is obvious why many see opportunity in alternative coins. Many will say that smaller coins are unlikely to ever return to their previous peaks. That may be the case, but it is arguably more likely we will see a 200% gain in one of these hugely depressed alt coins compared with the change of bitcoin having to rise all the way to $29,000.
Bitcoin recovery would be dwarfed by potential alt-coin gains
Putting this together into an image which standardises each of the charts and provides an idea of the progress made thus far, we can see that bitcoin holders will have suffered the least from the 2018-present decline. This is largely due to the smaller losses owing to its more secure role at the head of the crypto table. However, we can also see that many of the recoveries we are seeing across the cryptocurrency sphere are in their infancy.
With this in mind, let's take a look a some of those alternative coins to gauge whether they look like an attractive buying opportunity for the months ahead. Let’s focus on those that have provides us with bullish buy signals that could provide us with confidence of upcoming gains. It stands to reason that those markets which has seen more significant recoveries over the past month will often be more advanced in their recovery, increasing the likeliness of a bullish signal.
Litecoin has been trending higher over the course of 2020 thus far, with the price rallying through the $65.47 swing high. This points towards a bottom for the time being, with further upside likely. At a minimum we are looking at this as a retracement of the decline from $145.95. However, the clue we have that this could be a wider bottom which could provide a recovery through that $145.95 level comes with the fact that the December 2019 low failed to break below the $22.26 low from December 2018. Given that we have seemingly created a new higher low on the wider weekly time frame, there is a heightened potential for a more dramatic and long-lasting recovery.
The daily chart provides us with a more granular picture for litecoin, with the price action largely taking place within a standard deviation channel over the past seven weeks. With that in mind, there is a good chance that the declines we are currently seeing will provide another leg higher before long.
A break below the $66.55 low and previous resistance of $66.47 would bring about a more bearish short-term phenomenon, which would then look for a retracement of the wider $35.93 rally. Nevertheless, whether we see the price turn higher from here, or sees weakness over the coming week to set up a wider retracement buying opportunity, it does look likely we will see further upside before long.
EOS provides another market which has broken from the medium-term trend, following a rally through the $368.6 swing high. This has taken us into the 50% retracement level, with the price turning lower. With the stochastic breaking back below the 80 level, there is a chance we could see this as a selling opportunity.
However, the wider bullish picture being led by bitcoin signals a possibility that this is a short-term downside move before we push higher once more. The fact that we failed to break below the $153.2 level in December is notable, highlighting a clear possibility that we are basing as a precursor to further gains.
The recent declines have taken us into a deep retracement and lower end of a recent ascending standard deviation channel. That points towards s potential rise from here, with a breakdown below the $335.4 swing low required to signal a wider retracement coming into play. Until then, the tweezer formation seen from the past two candles points towards a possible rally to continue this recent uptrend.
Bitcoin cash gains have taken the price back towards the crucial breakout point of $515.5, as this crypto seeks to follow up on the bullish break through the $307.5 swing high. While the break through $515.5 didn’t happen, we are likely to return to this resistance zone before long. Once again, the declines in December 2019 held up enough to create a higher low compared with the 2018 low of $73.6. That is a tentative bullish signal, with the current move lower perceived as another potential higher low.
Once again, the daily chart provides us with a confluence of Fibonacci and standard deviation channel support, with the current downside looking a pullback of the rally from $296.8 low from January. A break below that low would bring about expectations of a wider pullback, yet the bullish trend seen throughout the past two months remains in play until that happens.
Ultimately, we are still in the infancy of a wider crypto recovery, yet the breakout seen in bitcoin does seem to set a precedence for alternative markets that could see amplified upside in a crypto bull market. The losses seen over the past week could be a short-term move, or something that lasts a matter of weeks. However, with tentative signs of a bottom in play for many markets, this does look like an interesting place to be looking for long opportunities after months of declines.
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