The total cryptocurrency market cap can oftentimes provide clues as to where Bitcoin and altcoins could be headed in the short-term.
The latest price action is exhibiting a pattern that looks structurally similar to a head and shoulders, which if valid and confirmed would suggest Bitcoin and the rest of the crypto market will make another retest of lows.
Cryptocurrency Market Chart Forms Head and Shoulders Reversal
The coronavirus hasn’t just killed thousands, frozen humanity, and devastated the economy, it’s also sent financial markets into a tailspin, including the world of cryptocurrencies like Bitcoin, Ethereum, and the hundreds upon hundreds of altcoins that make up the market.
As fears over the rapidly spreading pandemic peaked, markets suffered a catastrophic collapse. The Dow Jones Industrial Average saw the worst losses since 1987, and the total cryptocurrency market cap was set back by over $150 billion during the last month alone.
The fall in cryptocurrencies wiped out more than half of the total market’s overall value and market capitalization, but the asset class has since recovered over 50 billion in losses and is ranging above the recent lows.
However, if an ominous pattern on the total cryptocurrency market cap chart plays out, a retest of the lows is likely in the cards.
On the total crypto market cap, a potential head and shoulders pattern can be seen forming on 4H timeframes.
Chart Pattern Target Would Signal Retest of Lows Near $130 Billion
Head and shoulders are typically reversal patterns found at the top of a trend. This suggests that the recent recovery is over, and the target of the pattern would take the total cryptocurrency market cap back to retest lows around $130 billion.
The target of the structure would stop short of setting a new, lower low below $109 billion where the market fell to just weeks prior.
Chart patterns aren’t valid until confirmed in hindsight. However, declining volume as the pattern continues to form are signs that confirmation is probable.
According to the pattern, the price of cryptocurrencies should fall leading into today’s monthly close, forming the second half of the right shoulder and taking prices back down to neckline support.
If that support gives in, and the total cryptocurrency market falls below the neckline, the pattern is valid and the target comes into play.
However, if bulls manage to use the right shoulder to push the price of cryptocurrencies higher, it could lead to a short squeeze that propels the total crypto market cap back to highs not seen since February or January – long before the coronavirus spilled into the market and caused a catastrophic collapse.
Featured image from Shutterstock