Decoding the bottom signal: The crash and rebound scenario of the crypto market

Author: Doc

Compiled by: Tim, PANews

The purpose of this article is to give you an understanding of how I identify key signals in the market. We need to understand the psychology behind risk and use this to our advantage to identify potential market bottoms.

1. Projects with lower consensus will collapse first

When uncertainty strikes, sellers will dump their least optimistic assets. For example, coins with low consensus will collapse first and lose money earlier.

Think about it logically: if you need money urgently, you would not sell your valuables, but those things that you don’t need normally and have no value.

Likewise, when traders are unsure of market trends or want to reduce risk, they will often sell their least emotionally attached assets to cash out.

This phenomenon happens every time Bitcoin reaches the top, and it is no coincidence. Altcoins did not rise after Bitcoin reached the top, but rose simultaneously with Bitcoin's peak. They showed a trace of fatigue in front of Bitcoin earlier, and peaked first several weeks ago.

This is an early warning sign. Smart traders will reduce their risk before others know what is going to happen.

2. Risk vs. Blue Chip Coins

Let’s go back to the previous logic: people will keep their cherished high-quality belongings for as long as possible, and will only reluctantly give them up when they have no other choice.

The most popular currencies usually try to hold on to their gains as much as possible. This is why Bitcoin always looks strong, and every week before a market crash, the Internet is always filled with tweets like "Why are you panicking? Bitcoin is obviously very stable."

Selling order:

a) First, there are junk coins

b) Then there are blue chip coins

c) All coins are sold off in the end

3. Reflexivity effect appears

Weakness breeds more weakness.

When whales start selling in the midst of depleted demand, it triggers market weakness. This is a typical feature of the chip distribution phase: weak takeover, depleted demand, and a long trend.

The shift in the characteristics of risky assets will cause core decision-makers among experienced traders to re-evaluate their strategies.

"I didn't sell at the top, but the nature of the market has changed. It's time to reduce exposure or close the position."

"If this kind of drop is considered a nuclear explosion, what else is hidden in my account?"

Suddenly: Position adjustments trigger larger sell-offs, which is reflexivity, a positive feedback loop of fading risk appetite.

4. Volatility: The Last Dance

When Bitcoin is about to plunge, the market often becomes strangely quiet: volatility drops sharply, the market fluctuates in a narrow range, and complacency reaches its peak.

Then, boom, it collapsed.

​​Now, let us focus on the market nature of balance and imbalance. ​​

Balance is achieved when market participants gradually reach a consensus on what is expensive and what is cheap. It's a dance. It's equilibrium.

Balance means calm. Known information has been digested, speculation has subsided, and volatility has narrowed.

This dance continues until one party gets bored, tired, or wants to go to the bar for another drink. That is, the buyer or seller is exhausted; or supply or demand changes.

The equilibrium is disturbed. Once it is disturbed: there is an imbalance.

Prices deviate wildly from their original positions. Value becomes unclear; volatility surges. Markets crave equilibrium and will actively seek it.

Prices often return to areas that recently formed an overbalance: such as high volume points, order blocks, comprehensive value areas, etc.

It is in these areas that you will see the most violent rebounds.

"​​The first test is the best time​​". The reaction of subsequent tests will gradually weaken. The situation becomes structured. Prices stabilize at new points. Volatility shrinks. Balance returns to the market.

5. Selling process and bottom identification

Capitulation is not the beginning of the end, but the end of the middle game.

a) Altcoins vs Bitcoin

In this cycle, altcoins tend to complete the main sell-off before Bitcoin crashes.

Recent example: Fartcoin fell 88% from its high before Bitcoin crashed in late February. Now that this pattern is established, we can use it as a trading signal when looking for market exhaustion signals (signs of bottoming).

While Bitcoin is still oscillating wildly and searching for a new equilibrium, the strongest altcoins will be the first to show signs of exhaustion in their relative strength.

Simply put, when Bitcoin enters the late stage of imbalance, one should look for high-quality alternative coins to establish a balanced position.

As participants, our goal is to capture these deviations.

"Has the market momentum shifted?"

"Is volatility narrowing?"

"Is the pace of selling slowing down?"

"When Bitcoin hits a new low, can it still hold up?"

The bottom signal in the second quarter:

1. Weakened momentum (e.g. Fartcoin)
2. SFP, deviation (such as Hype, Sui public chain)
3. Higher lows vs Bitcoin lower lows (like Pepecoin)

Altcoins usually fall first, and their decline slows down after Bitcoin hits bottom.

Here’s the trick to identifying high-quality altcoins.

The weak will always be weak.

The strong ones quietly make plans before the market starts.

b) Bitcoin vs. S&P 500

Now let me give you a small exercise.

Integrating all the concepts in this article, perhaps the following phenomenon becomes reasonable:

• Summer 23: Bitcoin peaked before the S&P 500 and bottomed out earlier
• Summer 24: Bitcoin peaked before the S&P 500 and digested the S&P's plunge caused by macro factors at the low end of the range
• 25 years to date: Bitcoin peaked before the S&P 500 and withstood the S&P’s 20% plunge at the bottom of the range

​​Core Conclusion​​

The market bottoming out is a process rather than an instantaneous completion: altcoins take the lead → Bitcoin takes over → S&P lags behind

​​Operational Essentials​​: Focus on observing the evolution of market structure rather than simply tracking sentiment fluctuations