The bitcoin dominance rate (BTCD) has broken down from an important long-term support area. The largest altcoin, Ethereum (ETH), has been increasing in both the USD and bitcoin pairs.
If this newly initiated impulse continues, we may soon witness another huge rise in altcoin prices across the board.
Bitcoin dominance breaks down
The basic indicator of the condition of altcoins in relation to bitcoin is the bitcoin dominance index (BTCD). In the past, declines in this indicator marked subsequent “altcoin seasons.”
The biggest one so far took place at the turn of 2017-2018 when the BTCD swiftly lost 50% of its value. In just 5 weeks—between December 4, 2017, and January 8, 2018—it dropped from 71% to 35.5%.
In the weekly BTCD chart we can see that at the end of December 2020, the indicator retested the 71% area as resistance and started to drop to the long-term 60% support area.
After eight weeks of moving tightly within this area, there was a clear breakdown and the BTCD closed a 5% red candle last week.
BTCD chart by Tradingview
The drop was significant as it resulted in the loss of a long-term, increasing line of support. This ascending support has been in place since the beginning of 2018 when the BTCD dropped to a historic low of 35.5%.
Continuation of this downward movement could potentially lead to another altcoin-dominated era in the markets.
Helping to support this scenario is the price action of Ethereum (ETH). The ETH/USD pair recently made a new all-time high near $2,150. Currently, this area is being retested and confirmed as support.
As for its bitcoin pair, ETH bounced from an important support level and started an upward move. The long-term weekly chart shows that the ETH/BTC pair has been moving in a parallel channel since the summer of 2020.
Last week we saw a bounce from the support line of the channel at 0.03 BTC and an impulsive bullish candle of 18%. If the move continues ETH could potentially increase by another 40% to the 0.05 BTC area.
A closer look at the BTCD chart gives us the opportunity to identify potential areas of support.
Cryptocurrency trader @Pentosh1 posted a bitcoin dominance chart, noting a potential long-term support level between 52-53%. Additionally, Pentoshi stated that the downward movement could become parabolic.
A similar scenario was outlined by @WiseAnalyze who predicts that a short-term dead cat bounce will precede further declines.
A short-term bounce might act to validate the 60% area as resistance and would likely add momentum to any further declines.
The biggest altcoin season?
The BTCD drop below an important support area coupled with the bullish ETH price action is leading some crypto analysts and commentators to hypothesis about the great upcoming altcoin season.
For example, cryptocurrency trader @TheEuroSniper shows this possibility in the context of the total altcoin market capitalization.
EuroSniper provided a comparison from June 2016, when the alt cap broke its previous all-time high and started a 1.5-year rally. Now—eight weeks after the breakout from the previous 2018 ATH—the scenario appears to be repeating:
It also suggests that the boost in altcoins may not be just a short-term response to the relative stabilization of bitcoin’s price, but the beginning of a new, long-term rally to the top.
Some interesting comments were also tweeted by the Polish crypto Youtuber @MaciejTomczyk3, who draws our attention to the Altcoin Season Index.
He suggests that investors may want to consider taking some altcoin profits off the table:
The Altcoin Index indicator has reached a value of 92—a value not seen since March 2018. As long as the index remains above 75, there’s a high probability of more altcoin gains to come.