Signals of phase "trend decay" have first appeared!

Foreword

The current cycle of the crypto market exhibits many unprecedented characteristics compared to the past. For the first time, it faces the complex situation of macroeconomic tightening and global elections simultaneously within a bull market cycle; for the first time, it breaks the historical high before the Bitcoin halving event; for the first time, it welcomes the approval of spot ETFs and recognition by traditional financial markets; and it may even be included in the financial reserves of developed countries. All these historic events make people full of expectations for the future.

As a trend investor in the crypto market, I always maintain rationality. My goal is not only to improve the dollar value but, more importantly, to increase the amount of BTC I hold through trend judgment. The existence of trends and cycles essentially reflects the market's supply and demand relationship, emotional changes, and the profit-seeking nature of capital. Therefore, identifying trend signals through on-chain data analysis to make rational investment decisions is the key to my profitability in the market.

Trend Review and Current Market Status

In March 2024, after Bitcoin's price broke through the historical high of $73,000, it entered a months-long trend of oscillation downward. Until October, the market touched the $60,000 support level again, welcoming a new round of upward momentum. From October to December, the market continued a strong upward trend, but recent data indicates that this strength may have shown signs of decay.

The "three elements" of trend decay

In previous analyses, I proposed the "three elements" to judge the attenuation of phase trends:

Long-term holders (LTH) accelerate distribution: When long-term holders begin to sell off on a large scale, it indicates that they believe prices are close to a peak.

Large profit realization: The market shows a massive profit realization behavior, indicating that some investors choose to take profits.

Profit realization peak decreases: Even if prices rise, the peak of profit realization exhibits a downward trend.

From on-chain data, these three elements first appeared simultaneously at the beginning of December. The distribution by long-term holders (LTH) and profit realization both intensified, while the scale of profit realization began to decline, indicating that market demand may gradually fail to support prices from continuing to rise.

Key Data Analysis

1. Capital inflow slows down

As shown in the figure, the trend of capital inflow into the market often determines the momentum of prices. When capital inflow slows down, the upward momentum of BTC will also weaken. Similar phenomena occurred in May 2021, November 2021, and April 2024. In the current trend, the capital inflow from November 24 to December 7 shows a decreasing trend. If the peak of capital inflow cannot be restored in the short term, BTC prices will face the risk of correction.

2. Shrinkage of new demand

From the perspective of new demand data, whenever there is a large amount of new demand in the market, the price of Bitcoin usually experiences a strong upward trend. However, the current influx of new demand has significantly weakened. The chart shows that the scale of market demand after November is lower than that in March this year, only showing some improvement in market sentiment. Once new demand cannot continue to pour in, the market will enter a consolidation period and may even face a correction.

3. Changes in market sentiment

The dominant force of market sentiment has also changed recently. Data shows that the current main market driving force comes from Asian investors. Although U.S. investors briefly showed active sentiment at the beginning of December, it quickly fell back. The European market appears relatively calm due to the approaching Christmas holiday.

To maintain the upward momentum of BTC, the key lies in whether the U.S. market can reactivate capital inflow and new demand. If the sentiment of U.S. investors cannot improve, the probability of market correction will further increase.

Market Strategies and Responses

In response to the signal of trend decay, my strategy is to take profits in batches rather than waiting for the market to provide a single "selling point." In a bull market, trends usually do not end suddenly but gradually decay. Therefore, reasonably planning selling points and locking in profits in stages is an effective risk management tool.

Of course, no trading system is perfect. If the market suddenly reverses due to new favorable news, such as a surge in capital inflow or a new influx of demand, I will pause the profit-taking plan and patiently wait for new selling signals.

Conclusion

The decay of the trend does not mean that the bull market has ended, but rather reminds investors to be more cautious. After the signal appears, the inertia of market sentiment may still drive prices to rise slightly. Therefore, being flexible in response and taking profits in batches is the strategy I am currently adopting.

In the crypto market, the boundaries of cognition determine investment returns. As long as the trading logic is reasonable, aligns with risk preferences, and can be executed, it is worth sticking to. But it must be remembered that data cannot predict the future. Being ready to adjust strategies based on market changes is the only way to remain undefeated in the waves of the crypto market.

Today's article ends here; welcome to come and play on the homepage~

Investment carries risks; the above content is personal sharing and does not constitute investment advice!