Author: CRYPTO, DISTILLED
Compiled by: TechFlow
1 Introduction:
As cryptocurrencies move into the mainstream, opportunities for “easy profits” are shrinking.
Unfortunately, not everyone succeeds in seizing the opportunity.
Here are 10 signals and tips to help you exit at the peak of a market cycle.
2. Balloon > Bubble:
The word "bubble" is often misused. Instead, the market can be compared to a balloon.
While bubbles suggest fragility, balloons can be overinflated, deflated, and restabilized.
The key is to phase out as the balloon approaches maximum volume.
3. Understand the dynamics of the balloon:
The balloon metaphor helps explain why market tops are difficult to identify.
No one knows the limit of the balloon.
It’s not as simple as waiting for the frenzy on Twitter or your neighbor to buy BTC.
4. A new top signal is needed:
There are many precursors in cryptocurrencies that blur the line between adoption and old top signals.
As the industry evolves, the signals change.
Tracking crypto trading apps via the Apple Store charts was quite popular during the last cycle.
However, with the rise of BTC ETFs, this approach may no longer be effective.
5. The stakes are higher than ever:
2017 was the tulip bubble. 2021 gave us a glimpse of the dream. 202X could be real.
Will it end with a bang or with a bang?
While the outcome is uncertain, this cycle is very different.
6. Signal 1 - Too Much Leverage:
Excessive leverage often leads to forced liquidations and crashes.
New, unforeseen risk factors and Ponzi schemes could trigger a chain reaction.
Let’s dive into each one:
(i) Rapid de-risking (and black swan events):
Rapid de-risking occurs when new, unforeseen risks are quickly priced into prices.
This would trigger a massive portfolio de-risking, catching over-leveraged investors off guard.
For example: the 2022 LUNA debacle.
Source: CoinGape
(ii) Ponzi Scheme:
Pursuing short-term gains while ignoring fundamentals can create instability.
Over-reliance on price momentum requires a constant influx of “dumb money”.
Studying the tulip bubble can provide further insights.
7. Signal 2 - Corporate Financial Assets:
Many companies holding BTC as a reserve asset could be a sign.
While bullish, this may mean that we are further along the adoption curve than many realize.
Even Trump is talking about it now.
Source: Forbes
8. Signal 3 - Sovereign Wealth Funds (SWFs):
Taking this a step further, sovereign wealth funds may FOMO into BTC due to missing out, marking the final exit liquidity.
BlackRock insiders revealed the sovereign wealth fund’s interest.
For example: Norway ($1.4 trillion fund) or Saudi Arabia ($1 trillion fund).
9. Signal 4 - Golden Flip:
In the 2021 cycle, the “flip” narrative (ETH > BTC) is very strong.
Now, the flip between BTC and gold may define this cycle.
With BTC being hailed as digital gold, private and public capitulation could signal the final stages of the bull run.
10. Signal 5 - Liquidity Drys Up:
Liquidity tightening is a potential market top signal.
Cryptocurrencies have historically had a strong correlation with the global money supply.
Concerns arise in the market when liquidity surges and tightening looms.
Liquidity typically leads cryptocurrency prices by at least 6 months.
Source: RaoulPal
(i) Running out of fuel:
Without central bank intervention, the market frenzy could continue until the money runs out.
Asset prices rise faster when fuel is running out, but liquidity has already dried up.
11. Psychological top signal:
Emotions are a huge driver of human behavior, especially in the cryptocurrency markets.
Let’s take a closer look at two common psychological signals of market tops.
12. Signal 6 – Fear and Greed Index:
Extreme greed over a prolonged period of time can be a sign of impending problems.
They are often accompanied by the rise of excessive leverage and Ponzi schemes.
A common response is to gradually sell during periods of extreme greed.
Source: Alternative.me
13. Reliance on “ordinary people”:
Many people decide when to exit the market based on when their "dumbest" friend enters the market.
However, this can be misleading.
For our last signal, let’s have some fun and expand on this common strategy:
14. Signal 7 - Left Curve:
In a frenzy, your average friend will probably fare better than you. Why?
Because the "left curve" returns during the frenzy are much higher than others.
Ordinary people can outperform you again by buying your fundamentally sound coin while you buy theirs out of fear of missing out.
15. Psychological preparation:
You may not be able to accurately identify the top, but by mastering your emotions and training your market instincts, you can increase your chances of success.
Here's how to best prepare yourself:
16. Signs of adoption and bubbles:
Adoption and bubbles may look similar.
If this cycle is truly different, past patterns may not be useful at all.
Rely on your intuition and long-standing theories, and keep an open mind for paradigm shifts.
17. Emotion Regulation:
Consider potential losses in advance, assuming that you might be wrong about your theory.
For example, what would you do if the market had already peaked?
This proactive approach to prevention can minimize future pain and financial pitfalls.
18. Speculation trumps fundamentals:
In risky markets, speculation trumps fundamentals.
In contrast, in low-risk markets, fundamentals dominate.
However, as the industry matures, fundamentals become increasingly important.
Source: The DeFi Edge
19. We are all retail investors:
While new users may join at a later stage, it is important to accept that 99% of CT users are “retail investors”.
Many people end up losing money by buying shitcoins and selling them to “stupid retail money”.
In the final stages of a bull market, it's just a race to take profits.
20. Leave some proceeds:
Fight your greed by leaving some of your profits for others.
For example, the goal is to exit completely in the upper third of the cycle (rather than at the exact peak).
Respect your opponents to avoid being disrespected by the market.
21.Thread summary:
Monitoring institutional greed (corporations + sovereign wealth funds)
Be alert to new/potential black swan events
Beware of excessive leverage/Ponzi schemes
Research liquidity (altcoins follow closely)
Leave some profits for others
