Decoding Bottom Signals: The Crash and Rebound Script of the Crypto Market
The purpose of this article is to help everyone identify key signals in the market. We need to understand the psychological mechanisms behind risks and use this advantage to identify potential market bottoms.Original Title: Market Selloff Dynamics + Bottoming
Original Author: Doc
Original Compilation: 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 leverage this advantage to identify potential market bottoms.
1. Projects with Lower Consensus Sell Off First
When uncertainty strikes, sellers will offload their least favored assets. For example, coins with low consensus will crash first, bleeding out earlier.
Think about it logically: if you urgently need money, you wouldn't sell your valuable items, but rather get rid of things that are not needed and not worth much.
Similarly, when traders are uncertain about market trends or wish to reduce risk, they often liquidate their least emotionally attached assets to cash out.
This phenomenon occurs every time Bitcoin peaks, and it is no coincidence. Altcoins do not rise after Bitcoin peaks; they rise in tandem with Bitcoin's peak. They show signs of fatigue earlier than Bitcoin, having already topped weeks before.
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 hold onto their cherished high-quality assets for as long as possible, only parting with them when they are out of options.
The most sought-after coins typically try to hold onto their gains as much as possible. This is why Bitcoin always appears strong, and in the weeks leading up to a market crash, social media is often filled with tweets like "Why is everyone panicking? Bitcoin is clearly very stable."
The order of sell-offs:
a) First, junk coins
b) Then, blue-chip coins
c) Finally, all coins are sold off
3. Reflexivity Effect Emerges
Weakness leads to more weakness.
When whales start selling off in a depleted demand environment, it triggers market weakness. This is a typical characteristic of the distribution phase: lack of buying power, exhausted demand, and trends moving away.
The shift in characteristics of risk assets will prompt the core decision-makers among experienced traders to reassess 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 positions."
"If this drop is considered a nuclear-level crash, what other bombs are hidden in my account?"
Suddenly: position adjustments trigger larger sell-offs, which is reflexivity, a positive feedback loop of declining risk appetite.
4. Volatility: The Last Dance
When a significant drop in Bitcoin is imminent, the market often experiences eerie calmness: volatility drops sharply, prices oscillate narrowly, and complacency peaks.
Then, bang~ it crashes.
Now, let’s focus on the nature of balanced and unbalanced markets.
Balance is achieved when market participants gradually reach a consensus on what is expensive and what is cheap. It is a dance. This is equilibrium.
Equilibrium means calm. Known information has been digested, speculative activity diminishes, and volatility narrows.
This dance will continue until one side feels tired, exhausted, or wants to go to the bar for another drink. That is, either the buyers or sellers are worn out; or supply and demand change.
Equilibrium is disrupted. Once it is broken: imbalance occurs.
Prices deviate sharply from their original positions. Value becomes unclear; volatility surges. The market craves balance and will actively seek it.
Prices often return to areas where balance was recently established: such as high volume points, order blocks, and composite value areas.
It is in these areas that you will see the most vigorous rebounds.
"Initial tests are the best opportunities." Subsequent tests will show diminishing reactions. The situation becomes structured. Prices stabilize at new levels. Volatility contracts. Balance re-emerges in the market.
5. Sell-Off Process and Bottom Identification
Capitulation sell-offs are not the beginning of the end, but the end of the middle.
a) Altcoins vs. Bitcoin
In this cycle, altcoins often complete their major sell-offs before Bitcoin crashes.
Recent case: Fartcoin had already fallen 88% from its peak before Bitcoin's crash at the end of February. Since this pattern holds, we can use it as a trading signal when looking for signs of market exhaustion (bottoming signals).
When Bitcoin is still experiencing significant volatility, seeking a new balance, the strongest altcoins will first show signs of relative weakness.
In simple terms, when Bitcoin enters the late stage of imbalance, one should look for quality alternative coins to establish balanced positions.
As participants, our goal is to capture these divergence phenomena.
"Is market momentum shifting?"
"Is volatility narrowing?"
"Is the speed of sell-offs slowing down?"
"When Bitcoin makes new lows, can it still hold steady?"
Second quarter bottom signals:
- Momentum weakening (e.g., Fartcoin)
- SFP, divergence (e.g., Hype, Sui blockchain)
- Higher lows vs. lower points for Bitcoin (e.g., Pepe coin)
Altcoins typically drop first, and their decline slows down after Bitcoin hits bottom.
The key to identifying quality altcoins lies here.
The weak remain weak.
The strong quietly position themselves before the market trend starts.
b) Bitcoin vs. S&P 500
Now let’s do a little exercise.
Integrating all the concepts from this article, perhaps the following phenomena become reasonable:
- Summer 2023: Bitcoin peaks before the S&P 500, completing its bottoming process earlier.
- Summer 2024: Bitcoin peaks before the S&P 500 and absorbs the S&P's macro-induced crash at lower levels.
- Year-to-date 2025: Bitcoin peaks before the S&P 500 and withstands a 20% drop from the S&P at lower levels.
Core Conclusion
Market bottoming is a process rather than an instantaneous event: altcoins lead → Bitcoin follows → S&P lags behind.
Key takeaway: Focus on observing the evolution of market structure rather than merely tracking emotional fluctuations.
