The phenomenon of rapid rises and falls during a bull market: the battle between capital and psychology

In the cryptocurrency market, we often observe a seemingly contradictory phenomenon — during a bull run, prices rise slowly and steadily, but once a decline begins, it can drop rapidly. Where does this pattern of slow gains and sharp drops come from? In fact, it results from the interplay of three forces: incremental capital inflows, market expectations, and investor psychology.

Continuous Capital Inflows: Why Daily Gains Are Limited

When a true bull market forms, not everyone recognizes it immediately. People tend to wait until the index doubles, reaches new all-time highs repeatedly, and individual stocks increase five or even ten times before broadly acknowledging a bull market. During this process, the market is filled with skepticism.

But precisely amid this skepticism, incremental capital quietly flows in. Every day, new funds enter the market, pushing prices upward. Even if there are sharp rises in the morning followed by dips, and declines in the afternoon, funds often step in during the last half hour to ensure that the close remains dominated by the bulls. The result of this repeated tug-of-war between bulls and bears is that the market almost rises every day, but the gains are not spectacular.

Divergence Between Bulls and Bears and the Absorption of Negative News: The Logic of Slow Growth

Every day, there is a divergence between bullish and bearish sentiments. Even when negative news appears, the market can quickly digest it, sometimes interpreting negative information as a buying opportunity. Under this complex struggle of forces, the characteristic of slow, steady growth emerges — some days see significant rises, others see small advances, calm yet persistent upward movement.

This process continually accumulates profit-taking positions. Many participants do not hold a firm belief in a sustained bull market; their true intention is speculative — to sell at the top.

Triggering a Sharp Drop: Collective Selling by Skeptics and Speculators

When one day the market suddenly drops and fails to rebound, this signal can instantly trigger a mass sell-off by speculators and skeptics of the bull market. This is the other side of the slow rise and rapid fall phenomenon — accumulated profit positions are released in an instant, combined with a collective loss of confidence, leading to a swift decline. At this point, the market structure completely changes, shifting from a bull-dominated to a bear-dominated environment, with the speed of decline far exceeding the pace of the rise.

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