Decoding Bottom Signals: The Collapse and Rebound Script of the crypto market

Author: Doc

Compiled by: Tim, PANews

The purpose of this article is to help you understand how I identify key signals in the market. We need to understand the psychological mechanisms behind risk and use this advantage to identify potential market bottoms.

1. Projects with lower consensus tend to collapse first.

When uncertainty strikes, sellers will dump their least favored assets. For example, coins with low consensus will crash first, bleeding out earlier.

Logically speaking: If you urgently need money, you wouldn’t sell your valuable items, but rather sell those things that you don’t usually need and are not worth much.

Similarly, when traders are uncertain about market trends or wish to reduce risk, they often liquidate their least emotionally dependent assets to cash out.

This phenomenon occurs every time Bitcoin reaches a peak, and it is certainly not a coincidence. Altcoins do not rise after Bitcoin peaks; instead, they rise simultaneously with Bitcoin’s peak. They had already shown signs of fatigue earlier in front of Bitcoin, having peaked weeks ago.

This is an early warning signal. Smart traders will reduce risk before others even realize what is about to happen.

2. Risk VS Blue Chip Coins

Let’s return to the previous logic: people will keep their cherished high-quality possessions for as long as possible, only parting with them when they are left with no other choice.

The most sought-after cryptocurrencies usually try their best to hold onto the gains they have made. This is why Bitcoin always appears to be sturdy, and in the weeks leading up to every market crash, social media is often flooded with tweets like “Why is everyone panicking? Bitcoin is clearly very stable.”

Sell Order:

a) First is the garbage coin

b) Then there are blue chip coins

c) Finally, all coins are sold off.

3. Reflexivity effect appears

Weakness can lead to more weakness.

When whales start to sell off in a dwindling demand, it will trigger market weakness. This is a characteristic of the typical distribution phase: lack of buying power, exhausted demand, and trends moving away.

The characteristic transformation of risk assets will lead the core decision-making team among experienced traders to reassess strategies.

“I wasn’t able to sell at the top, but the market conditions have changed. It’s time to reduce exposure or close positions.”

“If this kind of drop is considered a nuclear-level crash, what other bombs are hiding in my account?”

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

4. Volatility: The Last Dance

When Bitcoin is about to plummet, the market often appears eerily calm: volatility drops sharply, the market fluctuates within a narrow range, and a sense of complacency peaks.

Then, boom~, it crashed.

Now, let us focus on the essence of balanced and unbalanced markets.

Equilibrium is reached when market participants gradually come to a consensus on what is expensive and what is cheap. This is a dance. This is equilibrium.

Equilibrium means calmness. The known information has been digested, speculative activities have weakened, and volatility has narrowed.

This dance will continue until one party feels bored, exhausted, or wants to go to the bar for another drink. That is, either the buyer or the seller is worn out; or supply and demand change.

Balance is disrupted. Once it is broken: imbalance appears.

Prices are severely deviating from their original position. The value becomes unclear; volatility surges. The market longs for balance and will actively seek it.

Prices often tend to revert to areas where balance has recently formed: such as high volume points, order blocks, and value areas.

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

“The initial test is the best opportunity.” The response to subsequent tests will gradually weaken. The situation is becoming more structured. Prices are stabilizing at new levels. Volatility is contracting. Balance is reappearing in the market.

5. Selling Process and Bottom Identification

The surrender sell-off is not the beginning of the end, but rather the end of the middle.

a) Shanzhai VS Bitcoin

In this cycle, altcoins often complete major sell-offs before the collapse of Bitcoin.

Recent case: Fartcoin had fallen 88% from its peak before the Bitcoin crash at the end of February. Since this pattern holds, we can use it as a trading signal when looking for market exhaustion signals (bottoming signs).

As Bitcoin continues to fluctuate sharply and seek a new balance, the strongest altcoins will show signs of relative strength exhaustion first.

In simple terms, when Bitcoin enters a state of imbalance in the later stages, one should look for quality altcoins to establish a balanced position.

As participants, our goal is to capture these divergence phenomena.

“Is the market momentum shifting?”

“Is the volatility narrowing?”

“Is the selling speed slowing down?”

“When Bitcoin hits a new low, can it still hold steady?”

Second quarter bottom signal:

1. Momentum weakening ( for example Fartcoin)
2. SFP, Deviation ( such as Hype, Sui public chain )
3. Higher Lows VS Lower Lows in Bitcoin ( such as Pepe Coin )

Altcoins usually drop first out of respect, and after Bitcoin hits the bottom, their decline actually slows down.

The trick to identifying quality altcoins is here.

The weak remain weak.

The strong quietly lay their plans, seizing the opportunity before the market starts to move.

b) Bitcoin VS S&P 500

Let’s arrange a small exercise for everyone.

Integrating all the concepts of this article, perhaps the following phenomena become reasonable:

• Summer 2023: Bitcoin peaked before the S&P 500, completing its bottom formation earlier.
• Summer of 2024: Bitcoin peaked ahead of the S&P 500 and absorbed the plunge caused by macro factors at the lower range of the S&P.
• 25 years to date: Bitcoin peaked before the S&P 500 and endured a 20% drop in the range low.

Core Conclusion

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

Key Takeaway: Focus on observing the evolution of market structure rather than simply tracking emotional fluctuations.