Original author: Murphy, on-chain data analyst
The signal of phased "trend decay" appears for the first time!
Preface
Looking back at this cycle, there are so many differences from the past. For example, this is the first time that there is both macro tightening and election market in the bull market cycle, the first time that the historical high was broken before the halving, the first time that it was officially recognized by traditional capital through spot ETFs, and the first time that it is expected to become a financial reserve asset of developed countries, giving us unlimited expectations for the future...
In this context, I am as excited as all of you. However, I know that faith is faith. I am essentially a player. I am not here to visit the cryptocurrency world, but to make money. I am also a trend investor, not a cross-cycle investor. Everything I do is to make more BTC in my wallet, not just to make the dollar value higher.
I believe that any financial asset, trends, and cycles always exist objectively. It is essentially about supply and demand relations, sentiment changes, capital seeking profit, and human nature! Therefore, I study on-chain data to analyze the factors influencing trend and cycle changes, make rational judgments, and guide trading, allowing myself to earn money with higher certainty than opening blind boxes.
That is, seize the trend, increase BTC, and embrace the future of the cryptocurrency market with a better posture!
Main text
On March 13, 2024, after BTC reached a historical high of $73,000, a prolonged downward trend of 7 periods began until October 10, when it last tested the $60,000 integer level and then reversed the trend, ushering in a new round of rising market. From October to December, these two months have consistently shown a strong trend with no signs of weakening.
On November 8, I wrote an article titled "Series 6 of Escaping the Peak" (link at the end), which mainly explained the methodology and underlying logic of using data regarding "supply and demand & profit realization." The final summary is that when BTC breaks the historical high and concurrently exhibits the following "three elements," it can serve as a basis for judging a peak stage:
1. Long-term holders (LTH) are accelerating distribution, and it is even nearing its end; 2. At the same time, there is the appearance of massive profit exits; 3. As the price rises, the peak of profit exits is actually getting lower.
(Figure 1)
As shown in Figure 1, starting from October 7, long-term holders began a large-scale distribution behavior for the second time in this cycle. This indicates that market demand began to increase, able to absorb the excess supply. On November 14, the first wave of massive profit-taking occurred, amounting to $5.2 billion (marked as 1 in Figure 1), with BTC's price at $87,000 that day; I have analyzed in previous tweets that historically, when LTH begins to distribute and the first wave of massive profits is realized, it often does not coincide with relative highs, so this is not a good selling point.
The fact is indeed so, on November 22, the second wave of massive profit exits occurred, amounting to $6.6 billion (marked as 2 in Figure 1), with BTC's price at $98,900 that day; at this time, a higher price appeared, accompanied by higher profit realization, which is a typical manifestation of a strong trend. Therefore, on November 24, I updated a tweet: "Don't rush! Patience is needed now more than ever."
On December 6, the third wave of massive profit exits occurred, amounting to $6 billion (marked as 3 in Figure 1), smaller in scale than the second wave, with BTC's price at $99,900 that day; this was the first instance in this trend cycle where all "three elements of judgment" were fulfilled. That is, 1. LTH accelerates distribution, 2. Accompanied by massive profit exits, 3. Higher prices but lower profit peaks.
The simultaneous fulfillment of 3 conditions indicates that the current strong trend shows signs of weakening!
In my data analysis system, I never easily draw conclusions based on the appearance of a single indicator or signal. To verify what has been mentioned above, I need to combine several other data for comprehensive observation (due to the limit on the number of images in tweets, I will not include data graphs from the previous cycle in the following analysis, only those from the current stage).
1. Capital inflow situation
(Figure 2)
As shown in Figure 2, whenever the trend of real capital inflow starts to slow down, the momentum for BTC price growth will begin to weaken; until the capital inflow can no longer support the price to maintain balance, a pullback will inevitably follow. Similar situations have occurred in May 2021, November 2021, and this April.
In this current trend, from November 24 to December 7, the overall scale of capital inflow is gradually decreasing. Although prices have not seen a significant pullback, if a peak in capital inflow (higher than the previous high) cannot appear again in the short term, this downward trend will gradually impact the momentum of BTC price growth.
2. Assessment of new demand
(Figure 3)
As shown in Figure 3, the sudden rise of the bottom red waveform indicates that a large amount of new demand has emerged in the short term. As demand continues to flow in, BTC usually experiences a strong market trend; similar situations have occurred in May 2017, November 2020, October 2021, and November 2023.
When demand begins to recede, BTC will enter a consolidation period; if new demand does not enter in the short term, the trend will gradually shift, and the market will enter a correction phase (as marked 1 in Figure 3).
The sudden rise of the bottom blue line in the chart indicates that short-term chips that were stuck at high positions have turned into long-term chips due to passive holding. This part will be the most unstable group of long-term holders in the future; once the price rises again, they will become the main selling pressure in the market.
Currently, we observe that market demand is beginning to decline (as marked 2 in Figure 3), and the overall demand scale of this wave is slightly lower than that of March this year, although the sentiment far exceeds that of March.
3. Market sentiment dominates
(Figure 4)
From Figure 4, we can clearly see who is currently leading the market. The red line is far above the blue and yellow lines, indicating that investors from the Asian region are the main driving force. Meanwhile, investor sentiment in the US region only saw a quick rebound on December 5, but regrettably dropped back the next day; the European region has not shown any significant fluctuations. After all, with the Christmas holiday approaching, it is understandable that the dominance of sentiment from European and American investors is gradually waning.
However, what we hope to see is whether the peak of capital inflow can be restored and whether a continuous influx of new demand can fundamentally support the momentum of BTC price growth, ultimately depending on the investors from the US region.
In conclusion
The shrinkage of new demand, slowdown in capital inflow, acceleration of LTH distribution, and profit realization peaks lower than previous highs... Observations from multiple data indicate that our conclusion of a weakening trend in this cycle observed from the "supply and demand & profit realization" data is traceable and substantiated.
Seeing a signal does not necessarily mean an immediate pullback; sometimes it may even rise further because market sentiment has inertia.
What will I do? — Of course, I will start executing a phased profit-taking plan. This signal is what I have been waiting for as a "selling point." In a bear market cycle, there will be several "buy points" to accumulate positions according to indicator signals; likewise, in a bull market cycle, there cannot only be one "selling point." What needs to be done is to plan well and seize every appearance of a "selling point."
What to do if you judge incorrectly? — There is no trading system in this world that is perfect and never makes mistakes. As long as it aligns with your risk preferences and expected returns, is logical, executable, and can form a closed loop, it is a good system. Cognition only reaches this point; money beyond your understanding cannot be earned.
But it is important to note that data cannot predict the future! It is also possible that the above comprehensive data may suddenly reverse due to some event, causing indicators such as capital inflow, new demand, sentiment driving force, and profit realization to start turning upward again, in which case, the "phased profit-taking" plan should be paused and we should patiently wait for the next signal to appear.
The above is just my personal plan and may not be correct, nor does it mean you have to be the same as me. Everyone's position size, risk preferences, and understanding of the top range differ. My sharing is only for data reference and not as investment advice!!
Original link
