The first signs of a "trend decline" have appeared!
Preface
The current cycle of the cryptocurrency market has many unprecedented features compared to the past. For the first time, it is facing a complex situation of macroeconomic contraction and global elections during a bull market cycle; for the first time, it has broken through the historical high before the Bitcoin halving event; for the first time, it has welcomed the approval of spot ETFs and the recognition of the traditional financial market; and it may even be included in the financial reserve assets of developed countries. All these historic events make people full of expectations for the future.
As a trend investor in the cryptocurrency market, I have always maintained rationality. My goal is not only to increase the dollar value, but more importantly, to increase the number of BTC I hold through trend judgment. The existence of trends and cycles essentially reflects the supply and demand relationship of the market, changes in sentiment, and the profit-seeking nature of capital. Therefore, identifying trend signals through on-chain data analysis and making rational investment decisions is the key to my profitability in the market.
Review of Trends and Current Market Conditions
In March 2024, the price of Bitcoin broke through the historical high of $73,000 and entered a months-long oscillating downward trend. Until October, the market retested the $60,000 support level and ushered in a new round of upward trend. From October to December, the market continued the strong upward trend, but recent data shows that this strength may have shown signs of decline.
The "Three Elements" of Trend Decline
In the previous analysis, I proposed the "three elements" for judging the periodic trend decline:
Acceleration of Long-Term Holder (LTH) distribution: When long-term holders start to sell on a large scale, it indicates that they believe the price has approached the high.
Massive profit-taking: The market sees massive profit-taking behavior, indicating that some investors choose to cash in on their gains.
Declining peak of profit-taking: Even if the price rises, the peak of profit-taking shows a downward trend.
From the on-chain data, these three elements first appeared simultaneously in early December. The distribution of LTH and profit-taking have both intensified, and the scale of profit-taking has begun to decline, suggesting that market demand may gradually be unable to support further price increases.
Key Data Analysis
1. Slowing Capital Inflow
As shown in the figure, the trend of capital inflow into the market often determines the momentum of price movements. 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 showed a downward trend. If the capital inflow peak cannot be restored in the short term, BTC prices will face the risk of correction.
2. Shrinking New Demand
From the new demand data, whenever there is a large influx of new demand in the market, the price of Bitcoin usually experiences a strong upward trend. However, the influx of new demand has clearly weakened at present. The chart shows that the scale of market demand after November is lower than that in March this year, with only a slight improvement in market sentiment. Once the new demand cannot continue to flow 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 driving force of the market comes from Asian investors. Although US investors showed a brief surge in activity in early December, it quickly subsided. The European market, on the other hand, appears relatively calm due to the approaching Christmas holiday.
To maintain the upward momentum of BTC, the key is whether the US market can reactivate capital inflow and new demand. If the sentiment of US investors cannot improve, the probability of a market correction will further increase.
Market Strategies and Responses
Faced with the signals of trend decline, my strategy is to take profits in batches, rather than waiting for the market to give a single "sell point". In a bull market, the trend usually does not end abruptly, but rather declines gradually. Therefore, reasonable planning of sell points and phased profit-locking are effective risk management measures.
Of course, no trading system is perfect. If the market suddenly reverses due to new positive news, such as a surge in capital inflow or a renewed influx of new demand, I will suspend the profit-taking plan and patiently wait for new sell signal.
Conclusion
The decline 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 the price to a slight high. Therefore, flexible response and phased profit-taking are the strategies I currently adopt.
In the cryptocurrency market, the boundary of cognition determines the return on investment. As long as the trading logic is reasonable, fits the risk preference, and can be executed, it is worth persisting. But remember that data cannot predict the future, and be prepared to adjust the strategy according to market changes in order to stand undefeated in the waves of the cryptocurrency market.
Finally, there are still many things that have not been written in, such as specific opportunities and specific decisions, which are often not something that can be summarized in an article.
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