BTC shows multiple signs of topping out; analysis of future trends and trading strategies
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BTC shows multiple signs of topping out; analysis of future trends and trading strategies
In the long-term trend, BTC has already entered a bull market. However, in terms of medium-term trends, it will experience a downward trend over the next few months.
Navigating Web3 tides with focused insightsAuthor: Riyue Xiaochu
The U.S. has approved spot ETFs, and the market is cheering for a new era—I fully agree.
From a long-term perspective, BTC has already entered a bull market. However, from a medium-term view, we will experience a downward trend over the next few months.
Question 1: Reasons for forming a top
1) A large amount of profit-taking capital exists
This is the premise—meaning significant selling pressure exists in the market. After nearly three and a half months of upward movement, most cryptocurrencies have seen broad gains. High performers like inscriptions have surged tenfold or more, mid-cap coins have gained around 10x, and even large-cap projects have generally risen 2–3x.
2) Fresh buying capital has dried up, and major players have started to exit
Since December, we've witnessed successive waves: inscription mania, Solana's explosive rally, DePIN trends, Layer2 narratives, and Polkadot ecosystem rotations. It’s clear that each subsequent wave has weaker momentum. Moreover, when newer sectors rise, previously hot ones begin to fall. This happens because fresh buyer capital has been exhausted. Most market participants are now fully invested or leveraged, so they must sell one asset to buy another.
These two phenomena clearly indicate declining purchasing power. From a capital flow perspective, a market cycle typically goes through three stages: 1) sidelined funds gradually enter; 2) fresh capital dries up, leading to internal fund rotation; 3) profitable positions cash out and major players withdraw. This means the actual money left playing in the market is shrinking.
3) Retail investors are overwhelmingly bullish
Currently on Twitter, you won’t find many KOLs expressing bearish views. The most common narrative is a dip to $42K followed by further upside. In most crypto groups, sentiment is uniformly bullish, with heavy positions widely held. There’s a well-known harsh truth: retail investors (the "weak hands") are always the last buyers. When all the retail holders are heavily long, there’s no more buying power left to absorb supply.
In short, bullish sentiment strongly diverges from actual capital conditions.
Question 2: Regarding BTC Spot ETFs
1) BTC spot ETFs are fundamentally positive in the long run, bringing in additional capital to buy BTC.
In the short term, it's a news-driven catalyst that may briefly boost BTC prices. But we must stay clear-headed: ETF approval does not mean massive inflows will happen immediately.
A spot ETF is merely an access channel—even though it connects to pools of powerful institutional capital. These are seasoned investors who decide based on whether the entry point and price are attractive. Even with compliant access, they’ll still assess whether BTC’s current level is worth entering. Therefore, I see ETFs as similar to Grayscale’s GBTC in 2020—they’re accelerants of a bull market, not the ignition source.
2) This rally was initiated by anticipation of the ETF.
If you recall three months ago, hardly anyone expected BTC to reach $48K—a level close to the peak of the 2021 bull market. Given that the anticipated 2025 bull run is still far off, and considering the Fed remains in a rate-hiking cycle, it's evident that some with insider knowledge or sharp analysts correctly anticipated the ETF approval and drove this rally. Thus, once the ETF is officially approved, it becomes their moment to take profits and exit.
Question 3: Medium-Term Trend Outlook and Trading Strategy
How deep will this medium-term correction go?
It's hard to say precisely. BTC might correct 20%–30%, at which point significant sidelined capital could re-enter. However, altcoins may fare worse, with sharper pullbacks expected—especially those that surged dramatically. Deep corrections are normal. If external markets weaken—such as a major U.S. stock market crash—BTC’s correction could be even deeper. Another event like March 12 ("Black Thursday") isn't out of the question.
Trading Strategy
1. Position sizing should vary based on individual risk tolerance—keeping 20% to 60% exposure is reasonable, mainly for long-term holdings. Higher-risk-tolerant investors can hold more.
2. If your portfolio is currently overweight, consider reducing positions in the coming days. Importantly, don’t sell only your profitable positions while holding onto losing ones—that’s a flawed approach. Instead, consider:
1) Holding more of the assets you intend to keep long-term
2) Selling tokens that began declining since early January and are now rebounding on ETF hype. Major players have likely already exited, leaving heavy overhead resistance. These coins often struggle to make new highs afterward.
3) Taking partial profits on recently hyped narratives
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