1 Introduction:
As cryptocurrencies gradually enter the mainstream market, the opportunities for "easy profits" are decreasing.
Unfortunately, not everyone succeeds in taking advantage of 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, think of the market as a balloon.
While bubbles suggest fragility, balloons can overinflate, deflate, and restabilize.
The key is to gradually withdraw the balloon as it approaches its maximum volume.
3. Master the dynamics of the balloon:
The balloon metaphor helps explain why market tops are difficult to identify.
No one knows the limits of balloons.
It’s not as simple as waiting for the craze to hit X or for your neighbor to buy Bitcoin.
Source: cryptodistilled
4. A new top signal is needed:
Cryptocurrencies have a lot of precursors that blur the lines between adoption and old top signals.
As the industry evolves, so do the signals.
In the last cycle, tracking crypto trading apps through the Apple Store charts was extremely popular.
However, with the rise of Bitcoin ETFs, this approach may no longer work.
5. The stakes are higher than ever:
2017 was a tulip bubble. 2021 has given us a glimpse of the dream. 202X could be real.
Will it end with a bang or a low note?
While the outcome is uncertain, this cycle is very different.
6. Signal 1 - Too much leverage:
Too much leverage often leads to forced liquidations and crashes.
New, unforeseen risk factors and Ponzi schemes may trigger knock-on effects.
Let’s dive into each one:
(i) Rapid de-risking (and black swan events):
Rapid derisking occurs when new, unforeseen risks are quickly priced into prices.
This could trigger massive portfolio de-risking, catching overleveraged investors off guard.
For example: $LUNA crash in 2022.
Source: CoinGape
(ii) Ponzi scheme:
Pursuing short-term gains while ignoring fundamentals can create instability.
Too much reliance on price momentum requires a constant influx of "dumb money."
Studying tulip bubbles can provide additional insights.
7. Signal 2 - Corporate financial assets:
It could be a sign that many companies are using Bitcoin as a reserve asset.
While bullish, this may mean 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 it a step further, sovereign wealth funds may FOMO into Bitcoin over missed opportunities, symbolizing an eventual exit from 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 (Ethereum > Bitcoin) is very powerful.
Now, a Bitcoin-gold flip could define this cycle.
With Bitcoin heralded as digital gold, private and public capitulation could signal the final stages of a bull run.
Image source: Hashdex
10. Signal 5 - Liquidity depletion:
A liquidity crunch is a potential market top signal.
Historically, cryptocurrencies have had a strong correlation with the global money supply.
Worries arise when liquidity surges and a tightening is imminent.
Liquidity typically leads cryptocurrency prices by at least 6 months.
Source: RaoulPal
(i) When the oil is exhausted:
Without central bank intervention, the market frenzy could continue until money runs out.
Asset prices accelerate when oil runs out, but liquidity has long since dried up.
11. Psychological top signal:
Emotions are an important driver of human behavior, especially in the cryptocurrency market.
Let’s dive into two common psychological signals of market tops
12. Signal 6 - Fear and Greed Index:
Prolonged periods of extreme greed can be a sign of upcoming problems.
They are often accompanied by excessive leverage and the rise of Ponzi schemes.
A common response is to gradually sell during periods of extreme greed.
Image source: Alternative.me
13. Rely on “ordinary people”:
Many people decide when to exit based on when their "stupidest" friends entered the market.
However, this can be misleading.
For our last signal, let's have a little fun and expand on this common strategy:
14. Signal 7 - Left Curve:
In a frenzied mood, your casual friends may fare better than you. Why?
Because the return rate of the "left curve" during the mania is much higher than others.
Ordinary people can overtake you again by buying your coin with good fundamentals while you fear to miss the opportunity to buy their coin.
Source: cryptodistilled
15. Mental preparation:
You may not be able to pinpoint the top, but by mastering your emotions and training your market intuition, you can improve your odds of success.
Here's how to best prepare yourself:
16. Signs of adoption and bubbles:
Adoption and foam may look similar.
If this cycle is truly different, past patterns may not be useful at all.
Rely on your intuition and long-term theory, and stay open to paradigm shifts.
Source: cryptodistilled
17. Emotional regulation:
Consider potential losses ahead of time and assume you might be wrong about your theory.
For example, what would you do if the market had peaked?
This proactive prevention approach can minimize future pain and financial pitfalls.
18. Speculation trumps fundamentals:
In high-risk markets, speculation trumps fundamentals.
In contrast, in low-risk markets, fundamentals dominate.
However, as the industry matures, fundamentals become increasingly important.
Image source: The DeFi Edge
19. We are all retail investors:
Although new users may join later, it is important to accept the fact that 99% of CT users are "retail investors".
Many people end up losing money by buying junk coins and selling them to "stupid retail money".
In the final stages of a bull market, it's just a race to profit.
20. Leave some income:
Fight your greed by leaving some 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. Summary:
Monitoring Agencies (Corporate + Sovereign Wealth Funds)
Be wary of new/potential black swan events
Be wary of excessive leverage/Ponzi schemes
Investigate liquidity (altcoins follow)
Leave some profit for others
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "Deep Wave TechFlow"
Original author: CRYPTO, DISTILLED
