Having been in the cryptocurrency circle for eight years, I have seen too many retail investors complain whenever the coin price drops, always feeling that the major player is scheming to take away their little bits of Bitcoin, Ethereum, or ZEC. But in fact, no one really cares about your little scattered chips. The core purpose of a washout is to eliminate the 'unstable factors' in the market to pave the way for a smoother rise afterward.
I once tracked a small cryptocurrency called AR throughout, with an initial price of 0.8U and a total circulation of 8 million coins, where retail investors held nearly 70% of the positions. The major player quietly accumulated 2.5 million chips at the bottom but delayed any upward movement. The logic behind this is simple: if the price is pushed directly to 1.2U, those early low-cost retail investors will definitely concentrate on selling, and the large selling pressure will cause the rise to fail. Without a unified expectation of an increase, it cannot last long.
A targeted wash-up has begun.
The first stage is a gradual decline like boiling a frog. The coin price slowly dropped from 0.8U to 0.6U, with low trading volume throughout and no relevant news released. Retail investors began to feel anxious, wondering if this coin had no future, and that continuing to hold might lead to total loss. As a result, more and more people chose to cut their losses and exit, while the dealer quietly acquired these chips around 0.6U.
The second stage is to lure and then kill the drop. The price suddenly plunged to 0.45U and then quickly rebounded to 0.65U. Many investors thought the bottom had been confirmed and rushed to buy at the bottom. However, the dealer immediately smashed the market again, causing the coin price to directly break the previous low point, dropping to 0.4U, with all bottom-buying funds deeply trapped, and the retail investor mentality completely collapsed.
The third stage is pressure accompanied by news. Various negative news began to spread, such as 'project technology has vulnerabilities' and 'core team members have resigned,' causing the coin price to plummet to 0.3U under the spread of panic. The market was pessimistic, and the remaining retail investors could no longer hold on, despairingly liquidating their positions, while the dealer was massively collecting chips in this low price range.
The final stage is a rapid rebound to build a bottom. The dealer quickly pulled the coin price back to 0.7U with only a small amount of funds, forming a typical 'golden pit' shape. Retail investors who previously cut losses were afraid of being trapped again and did not dare to chase high prices easily, while new investors had their costs around 0.7U, making their holding mentality more stable.
After a round of washing up, the dealer's chips increased from 2.5 million to 4.8 million, the average holding price further decreased, and the floating chips in the market were completely cleared. The subsequent rise was unusually smooth, with no significant selling pressure, and the coin price steadily rose.
The essence of washing is never about grabbing chips, but about screening investors. It is to expel those short-term investors with an impatient mindset and low cost, and replace them with a group of steadfast holders who have a higher cost and are optimistic about long-term value.
So next time when you encounter a sharp drop in coin price, don't rush to complain. Understanding the logic behind this will make you realize that this is not the end of the market, but a necessary preparation by the dealer for the next round of rising.
