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Bitcoin resumes downward movement and altcoins follow suit

After briefly consolidating at $42.5K, the number one cryptocurrency broke through support. A fall in BTC had a significant impact on the altcoin market. Yesterday, the global cryptocurrency market capitalization dropped by 2.5%, and many virtual assets appeared in the red zone.

It all happened due to BTC’s fall in the range of $41K-$41.5K that caused turmoil in the cryptocurrency market. Weak activity in the market and small trading volumes are named as possible reasons behind a sudden decline in the price of the flagship cryptocurrency. Consequently, the quote failed to touch the descending trendline and went down. A breakout of support should be interpreted as an opportunity to buy before the price moves towards the trendline. Therefore, the current fall should not be seen as a correction phase in the market.

At the same time, the current drop shows that due to bulls’ passive behavior at around $42.5K, BTC has no upside potential. At the same time, buyers were actively buying the digital asses below $42K, which is a positive signal. Firstly, it shows that the token is likely to continue trading within this range in the future. Secondly, an increase in liquidity at this level may indicate another attempt to break through the trendline or the mirror support level.

Speaking of possible risks, the price is moving from one level to another. Yesterday’s retest of the support zone produced an alarming signal that the price may plunge below $42.5K to accumulate liquidity. After brief consolidation, there is nothing wrong with that. However, if the price goes below $41K after a failed attempt to test the trendline, the signal may be interpreted in the wrong way. Consequently, it could lead to a sell-off and a retest of the level of $40K, and the quote may fall in the range of $38-$40K.

In addition, a breakout attempt by a small group of bulls may disrupt the impending altcoin season. The altcoin market depends heavily on the flagship cryptocurrency, which is confirmed by the current drop. The altcoin season index is now 63 points, while the bitcoin dominance index stays around 40. These are the most favorable conditions for a recovery of the altcoin market. Some coins, including ADA/USD, LUNA/USD, and BNB/USD, have already resumed their upward movement and showed the best growth in the last 7 days among the top 30 cryptocurrencies.

In mid-January, the altcoin market looks much more promising than BTC/USD that is hovering around $42.5K. However, without a stable main cryptocurrency, altcoins will fall due to high codependency. Therefore, when trading altcoins, you should carefully monitor BTC in order to protect yourself from a collapse or prepare for growth. The earnings season will begin in the near future. Large companies, including major holders of BTC, such as Tesla and MicroStrategy, will release their earnings reports. The main crypto asset, as well as the entire market, is likely to stay in the turbulence zone this week and show active growth with the start of the earnings season. At the same time, volatility is expected to grow within the last weeks of January. Therefore, it is worth increasing the percentage of stablecoins in the portfolio for diversification and risk management.

The material has been provided by InstaForex Company – www.instaforex.com

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