Bitcoin’s (BTC) price clocked a two-month high of $7,820 today and looks set to extend gains further, a key cryptomarket gauge indicates.
CoinMarketCap’s bitcoin dominance rate, an indicator that tracks the percent of the total cryptocurrency market capitalization contributed by the leading cryptocurrency, rose to 46 percent today — the highest level since December 20 — adding credence to BTC’s 20 percent rally seen in the last seven days.
To start with, a rise in the BTC dominance rate essentially means the number one cryptocurrency is more in demand compared to the alternative cryptocurrencies.
The above chart shows:
- The BTC dominance rate has increased from 40.5 percent to 46 percent in the last four weeks.
- During the same time period, BTC has rallied from $5,755 (June 25 low) to $7,820, according to Bitfinex.
The fact that the BTC price rally from the seven-month lows below $6,000 is accompanied by the sharp rise in the dominance rate indicates the bargain hunters are likely betting on further sustainable gains in BTC prices and are not buying BTC to venture into alternative cryptocurrencies.
In the latter case, the dominance rate of alternative cryptocurrencies over bitcoin rises sharply. This usually happens when BTC valuations start looking overstretched and in response investors begin rotating money into other innovations (as happened in late December 2017/early January).
So, a sharp rise in the BTC dominance rate, as seen in the last four weeks, could be considered a sign of investor confidence in the current BTC price rally.
Hence, BTC could soon find acceptance above the key 100-day moving average (MA) hurdle and cross the $8,000 mark in a convincing manner.
At press time, the cryptocurrency is trading at $7,700 on Bitfinex — up 3.4 percent on a 24-hour basis.
The rally post-inverse head-and-shoulders breakout ran out of steam around the 100-day MA in the last five days, establishing the MA as a key technical resistance.
A daily close (as per UTC) above the 100-day MA of $7,610 would further strengthen the bull grip and open the doors to 200-day MA, currently lined up at $8,720.
BTC is stuck in a broadening wedge — a continuation pattern, meaning an upside break would revive the rally from the July 17 low of $6,740 and open up upside towards the next major resistance located at $8,720 (200-day MA hurdle).
The 50-candle, 100-candle, and 200-candle MAs are trending north and positioned one above the other in favor of the bulls. So, BTC is more likely to witness an upside breakout.
That said, the bears could make a strong comeback if the broadening wedge is breached to the downside.
- A spike in the BTC dominance rate validates the short-term bullish outlook.
- A convincing break above the 100-day MA of $7,610 would only bolster the already bullish technical setup and could yield a test of 200-day MA of $8,720.
- A break below $7,190 (broadening wedge floor) would invalidate the bullish view.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
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Author: Omkar Godbole