The effect of capital rotation in the crypto market:

The total liquidity of the crypto market is relatively fixed in the short term, like a swimming pool with a fixed amount of water, and the water does not increase suddenly, but only flows from one side to the other. This explains the following: - Altcoins tend to be flat when Bitcoin is bullish - Altcoins can suddenly explode when Bitcoin is sideways - When one sector explodes, others may cool down
Five phases of capital rotation
1. Bitcoin is the first to rise: Money flows into Bitcoin first, and altcoins are flat
2. Bitcoin is trading sideways at a high level: Profitable funds are looking for new targets and flowing into large-cap altcoins
3. Large-cap altcoins rise: Funds continue to flow downward, with small- and mid-cap coins active
4. Small-cap tokens exploded: Speculative sentiment peaked, meme coins rose wildly5. Market-wide pullback: Starting with small-cap coins, Bitcoin followed suit
The psychology behind the rotation of funds
1. Progressive Risk AppetiteThe market is conservative at first, and as the market develops, investors are willing to take higher risks
2. Reinvest Profits Investors who make profits in Bitcoin don't leave the market right away, but look for the "next Bitcoin"
3. The smaller the market capitalization of the leveraged effect, the greater the price impact of the same funds
4. Information superiority chain: Big money and insiders usually act ahead of retail investors
How to use capital rotation to invest?
1. Identify the position of the cycle, determine which rotation stage you are currently in, and avoid contrarian operations
2. Take advantage of the trend and allocate Bitcoin when Bitcoin is rising strongly, and pay attention to large-cap altcoins when it is sideways
3. The closer risk management is to the end of the cycle ( the ) of the small currency madness, the more you should pay attention to the risks
4. Don't chase up, don't panic sell when Bitcoin is sideways, and don't go all in when small coins are crazy
5. Be patient and wait for each coin to have its own "season" and wait for the right moment to remember: in the crypto market, not every coin will rise at the same time, but each coin has its own "showtime".
Common misconceptions and truths
❌ "Bitcoin does not rise = the bull market is over" → wrong! It may be a precursor to the rise of copycats
❌ "XXX coin suddenly doubled = there is an insider" → wrong! Maybe it's just a turn
❌ "Petty coin rush = the bull market has just begun" →Wrong!99% of the time it's a doomsday carnival
❌ "The market is manipulated" → partly exists, but the essence is a collective performance of human greed
Understanding the rotation of funds can help you stay calm in the crypto market and avoid making wrong judgments due to short-term phenomena