Key signs of the approaching crypto market crash
The market is cyclical, so a correction is a natural phenomenon in the financial sector. After rapid growth, a subsequent crash is inevitable. Moreover, the faster the asset's price rises, the sharper the following fall will be.
From 2020 to 2021, the price of Bitcoin increased nearly seven times — from $10,000 to $69,000 at its peak. However, after that, within a single year, the price of the first cryptocurrency plummeted by more than four times to a two-year low of $16,000 by November 2022.
Whales move Bitcoin to exchanges and accumulate stablecoins
The primary reason large investors transfer cryptocurrencies from wallets to centralized exchanges is to sell or be prepared to do so shortly. At the same time, the number of Bitcoin holders decreases, and thus, the number of wallets holding large amounts of Bitcoin (1000 or more) also decreases.
For example, in 2018, during the onset of the "crypto winter," the number of Bitcoins in wallets holding over 1000 coins dropped by 800,000 BTC. A similar situation occurred before Bitcoin fell to $16,000 in 2022: the number of coins in whale wallets decreased by ~600,000 BTC. This data can be tracked using services like Glassnode (Whale Wallets metric) and Santiment (Large Transactions metric).
Another indicator would be a sharp increase in the number of stablecoins on exchanges. If this happens before a rise in cryptocurrencies, it could indicate that whales are ready to buy.
However, when large amounts of stablecoins appear on exchanges at peak cryptocurrency prices, it may signal that traders and investors are preparing to open short positions, anticipating a market collapse. Data on stablecoin quantities on exchanges can be tracked on CryptoQuant (Stablecoin Supply metric) and Nansen (Exchange Inflow metric).
The media frenzy begins
As the price of cryptocurrencies rises, so does media activity and social network engagement. At some point, when cryptocurrency prices are high, media hype, which investors also refer to as the "greed peak," begins. At this point, the interest among users also reaches its peak.
Usually, right before a decline, the number of searches related to Bitcoin and cryptocurrencies, in general, reaches its maximum — as it did, for instance, in late 2017, just before the prolonged "crypto winter" in the digital asset market.
Among investors, a popular saying from billionaire John Rockefeller is: "When you hear that even the shoeshine boy is talking about stocks, know that it's time to sell."
Redistribution of the balance between long and short positions
In addition to key metrics that reflect the long-term dynamics of digital asset prices (such as Bitcoin dominance, investor activity, and the number of Bitcoins on CEX exchanges), there are also short-term indicators that reflect the current market trend.
One such indicator is the Long/Short Ratio. When there is a significant shift towards long positions, it can indicate that the asset is overbought. For example, if the long-to-short* position ratio is 3 to 1 or higher, a sharp decline in cryptocurrency prices may follow soon after.
For instance, in April 2021, Bitcoin's price rose to a new all-time high (ATH) of $64,000 but then began a sharp decline, dropping to $30,000 by July — a more than 50% decline. At the same time, open interest (OI) in Bitcoin futures reached $27 billion, and the number of long positions reached 75% — a 4 to 1 ratio.
Open interest in Bitcoin futures, as well as the long/short ratio, can be tracked using services like Coinglass, TradingView, and Funding Rate.
* Long (long position) is a futures trade based on the expectation of a price increase.
* Short (short position) is a trade based on the expectation of a price decrease to profit from it.
Liquidity decreases in the DeFi market
The total value locked (TVL) in DeFi protocols and the market capitalization of cryptocurrencies are closely linked. For instance, if the price of Ethereum decreases, the total value locked (TVL) across all DeFi protocols within its ecosystem will also decrease.
However, suppose cryptocurrency prices are high, but the overall TVL in the DeFi market decreases sharply. In that case, this indicates a withdrawal of liquidity from decentralized protocols and may precede a forthcoming crash in digital assets.
The withdrawal of assets from liquidity pools can also be a consequence of some incidents. For example, amid news of the crisis of one of the largest crypto exchanges, FTX, and its associated fund, Alameda Research, the TVL in the Solana ecosystem collapsed by 80%, and the price of its native cryptocurrency, SOL, dropped by 70%.
The most popular services for tracking TVL in the decentralized finance market are DeFi Llama and Token Terminal. They enable monitoring of both the total TVL of DeFi protocols and the TVL by specific blockchain ecosystems and segments (DEXes, Lending, Liquid Staking, RWA, etc.).
The economy becomes unstable, regulation tightens
It is also important to note that the crypto market is affected by external factors related to the global economy. For example, a series of aggressive interest rate hikes by the Federal Reserve in 2022-2023 led to a drop in Bitcoin's price: in just six months, the cost of the first cryptocurrency fell almost threefold — from $47,000 to $16,000.
The same applies to regulation: if governments begin to introduce new bans and restrictions, it can be a precursor to a collapse. For instance, in 2021, China tightened its ban on cryptocurrencies, declaring all digital asset transactions illegal — including trading and token issuance. This led to panic among investors, further exacerbating the decline in cryptocurrency prices.
In 2023, a lawsuit by the U.S. Securities and Exchange Commission (SEC) against Binance and Coinbase led to a 20% correction in cryptocurrency prices. Restrictive actions by regulators lead to capital outflows from the cryptocurrency market and, consequently, to a price collapse.