Bump and Run Reversal in USDT Dominance: Part 2Please refer to the USDT Dominance article I wrote over a year ago explaining what would happen (and what has happened so far):
In early 2024, the USDT dominance in the crypto market experienced a significant shift that marked the end of a long-standing trend. This change, driven by a classic "bump and run" reversal pattern, has broken the trend that I have been observing since the initial breakdown I discussed back in January 2023.
The Build-Up: 2022-2023
Looking back to 2022 & 2023, USDT dominance found strong support around the 6.5% mark. This level served as a critical floor, preventing further declines for much of that year and extending into 2023.
However, the breakdown that I anticipated eventually occurred. As USDT dominance dipped below 6.5%, the dominance entered a freefall (boosting crypto prices), eventually finding new support around 5.5% in late 2023. This was a crucial moment, as the 5.5% level had not been tested in such a manner in years, setting the stage for what was to come.
Breaking the Major Trendline: A Turning Point
What made this breakdown particularly notable was that it marked the first time USDT dominance had broken below a major trendline that had been holding firm since late 2018. This trendline had been a key reference point for me, acting as a stronghold for my bullish sentiment. Its breach signaled a significant shift in the market dynamics.
As USDT dominance continued to decline, it reached a low of approximately 3.75%. This dramatic drop indicated a loss of USDT's dominance over the broader cryptocurrency market and boosted the price of many other crypto assets. However, after this steep decline, the market began to correct in a slow, overlapping fashion. This corrective cycle is important moving forward.
By August 5, 2024, USDT dominance had ascended back to 6.77%, where it encountered double resistance. This level aligns closely with the trendline that was broken in early 2024, serving as a critical test for the market. The rejection at this resistance level suggests that we may be witnessing new buying opportunities, as the market tries to establish its next direction.
The Bump and Run Reversal: What It Means
The bump and run reversal pattern observed here is a powerful indicator of potential market reversals. Typically, once the major trendline resistance is broken, the market tends to return to the initial start of the "run." In the case of USDT dominance, this could mean a return to levels below 1%.
While a drop below 1% dominance seems extreme, it's a scenario that cannot be ruled out entirely. However, a more conservative and perhaps more realistic target would be a move to around 2% dominance. Such a shift would represent a significant rebalancing of the cryptocurrency market, potentially opening up new opportunities for altcoins and other digital assets to gain ground.
The Road Ahead: Caution and Optimism
Despite these potential shifts, it's important to remember that the cryptocurrency market remains a highly volatile and risky asset class. While the future of crypto is bright, you should approach it with caution, especially when considering leverage trading. This type of trading can amplify gains, but it can also magnify losses, making it unsuitable for those without significant experience.
