In the trading landscape of the cryptocurrency market, the 'early morning segment pressure' is no longer an accidental event but has become a normalized market phenomenon. Generally speaking, this phenomenon occurs mainly between 2:00 AM and 5:00 AM Beijing time (corresponding to the inactive period of the European and American trading sessions), characterized by a sudden influx of large sell orders for specific cryptocurrencies or the entire market within a short time frame (1-3 hours), resulting in a rapid price drop of 5%-20%, accompanied by a surge in trading volume, but often followed by varying degrees of rebound. For most retail investors, the early morning sleep period has become a 'profit evaporation' disaster zone; from the perspective of market ecology, this phenomenon reflects the uniqueness and fragility of the cryptocurrency market. This article will delve into the characteristics of the phenomenon, analyze its causes and transmission mechanisms, and provide targeted coping strategies.
I. Key characteristics of the early morning price surge: timing, suddenness, and reversibility.
To understand this phenomenon, we must first identify its three core characteristics, which are also the key to distinguishing "early morning sell-offs" from regular bear market declines:
1. Strict time-locking
The sell-off almost precisely targeted a "time vacuum" in global trading—between 2:00 AM and 5:00 AM Beijing time. During this period, investors in major Asian trading markets (China, Japan, and South Korea) are asleep, European markets are closed, and the US market is in its quiet closing phase (10:00 PM to 1:00 AM New York time). During this time, overall market liquidity drops to its lowest point of the day. According to CoinGecko data, the average trading volume between 3:00 AM and 4:00 AM is only 30%-40% of the daytime peak. This liquidity crunch makes large sell orders more likely to trigger significant price fluctuations, creating a leverage effect where "small capital can trigger a large drop."
2. Sudden and short-lived
Before a sell-off begins, there are often no obvious negative signals, and prices are mostly in a stable, fluctuating state. After the sell-off begins, the main decline is usually completed within 30 minutes to 2 hours, accompanied by a large influx of "market sell orders," which quickly break through the top five bid levels on the order book, forming a "waterfall-like drop." Unlike a trending decline, the decline in a sell-off in the early morning is mostly concentrated in the short term, rarely resulting in a continuous decline over several trading days. In most cases, a rebound of varying degrees can be seen on the same day or the next day.
3. Reversibility and Targetedness
Historically, in about 70% of cases of overnight sell-offs, the underlying cryptocurrency rebounds to its pre-sell-off price range within 1-3 trading days, exhibiting a clear "post-sell-off recovery" characteristic. Furthermore, these sell-offs are highly targeted—primarily affecting cryptocurrencies with medium market capitalization, high retail investor holdings, and relatively low liquidity. While leading cryptocurrencies like Bitcoin and Ethereum are also affected, the declines are usually more moderate, and the recovery is faster.
II. Causes and Roots: Liquidity Vacuum, Major Players' Shakeout, and Global Market Linkage
The overnight sell-off was not caused by a single factor, but rather by the combined effects of market structure, capital flows, and the global trading environment. A closer analysis reveals that the core causes can be summarized into three main aspects:
1. Core premise: Liquidity depletion due to global time zone mismatch
The cryptocurrency market is a global 24-hour continuous trading market, but trading activity varies significantly across different regions. The Asian market (China, Japan, and South Korea), the European market (UK and Germany), and the US market constitute the three core trading sessions globally, accounting for over 80% of total market volume. The period from 2:00 AM to 5:00 AM is a "transition vacuum" between these three markets, during which the number of market participants sharply decreases and order book depth is insufficient. In this situation, major players only need to dump a relatively small amount of tokens to trigger a significant price drop, creating a "sell-off effect." This logic is similar to "throwing a boulder into a calm lake"—the same amount of capital can cause greater volatility compared to the daytime when liquidity is abundant.
2. Core Driving Force: The "Low-Cost Washout" Strategy of Major Funds
For major funds (institutions and large investors) holding a large number of shares, selling pressure in the early morning is a highly cost-effective way to shake out weak hands. On the one hand, retail investors are mostly asleep in the early morning and cannot react in time, making it difficult to respond by placing stop-loss orders or averaging down. They are easily "passively stopped out" during price crashes, allowing major players to absorb the shares sold at a lower price. On the other hand, market sentiment is low in the early morning, and the panic caused by the selling pressure is more likely to spread, potentially triggering a second round of selling after the market opens the next day, further reducing the major players' accumulation costs. In essence, this kind of selling pressure is not a sign of a bearish market, but rather a way for major players to "create panic" to clear out floating shares and prepare for a subsequent price surge—which also explains why most selling pressure events are followed by a rapid rebound.
3. Supporting Factors: Macroeconomic News Vacuum and the Link Between the Derivatives Market
The early morning hours are also a "vacuum period" for global macroeconomic news. Without the release of important economic data or policy announcements, major funds are less affected by external news and can more easily control the market rhythm. At the same time, the interconnectedness of the derivatives market can exacerbate the selling pressure: during the early morning hours, leveraged positions in the futures market are relatively concentrated, and a rapid price drop can trigger forced liquidation of a large number of leveraged long positions. These liquidation orders further intensify selling pressure, creating a vicious cycle of "sell-off-liquidation-further sell-off." According to BitMEX data, the forced liquidation volume in the futures market during early morning sell-offs is on average 2-3 times that of the daytime, becoming a significant driver of the amplified decline.
III. Transmission Mechanism: The Chain Reaction from Price Fluctuations to Market Sentiment
The impact of the overnight sell-off is not limited to the price itself, but will have a multi-dimensional transmission effect on the market through the "price-sentiment-funds" chain:
First, sharp short-term price fluctuations disrupt market pricing order. The selling pressure caused by liquidity shortages leads to prices deviating from reasonable valuations, creating a "liquidity discount." However, this discount is short-term and reversible; as liquidity recovers during the day, prices will gradually return to fundamentals. Second, the spread of panic triggers irrational trading in the market the following day. Retail investors who were trapped or forced to sell at a loss in the early morning may engage in irrational "buy high, sell low" operations after the market opens the next day, further exacerbating market volatility. Finally, frequent and prolonged selling pressure weakens market confidence. For retail investors, indiscriminate selling pressure in the early morning reduces their confidence in holding positions, causing some funds to withdraw from the market and shift to more stable investment targets, which is detrimental to the long-term healthy development of the market.
IV. Response Logic: An Advanced Strategy from Risk Prevention to Proactive Utilization
Faced with the overnight sell-off, different types of investors should adopt different strategies, with the core principle being "risk avoidance first, and rational use of opportunities":
1. Retail investors: Risk control is the core focus.
For retail investors, the core risks of overnight sell-offs are "passive stop-loss" and "sleep losses." Therefore, the strategy should focus on "reducing the risk of holding positions overnight": First, set dynamic profit-taking and stop-loss orders, adjusting the stop-loss line above the cost line, while avoiding setting overly aggressive profit-taking levels to prevent being shaken out by short-term sell-offs; second, control the position size overnight, taking some profits at intraday highs to reduce the overnight position ratio to below 50% to reduce losses from sell-offs; third, avoid using leverage overnight, as leverage amplifies risk, and in the event of a sell-off, there is a risk of forced liquidation.
2. Institutional investors: Optimizing positions by taking advantage of liquidity vacuums.
For institutional investors, the liquidity vacuum in the early morning hours presents both a risk and an opportunity. Institutions can respond in two ways: first, by taking advantage of the early morning sell-off to accumulate shares at low prices, gradually buying high-quality cryptocurrencies later in the sell-off to reduce holding costs; second, by hedging risks through derivatives, selling a suitable amount of futures contracts during the early morning hours while holding the spot market to hedge against price volatility caused by the sell-off.
3. Long-term investors: Focus on fundamentals and ignore short-term fluctuations.
For long-term value investors, overnight price drops are merely short-term market noise and should not be given undue attention. Long-term investors should focus on the fundamentals of the cryptocurrency, such as the project's technological strength, ecosystem development, and industry competitiveness. As long as these fundamentals remain unchanged, short-term price fluctuations will not affect the long-term investment value. Therefore, long-term investors can choose to ignore short-term fluctuations during the overnight period, avoid being swayed by market sentiment, and adhere to a long-term holding strategy.
V. Conclusion: The early morning sell-off was a temporary consequence of an immature market.
The overnight sell-off in the cryptocurrency market is essentially a result of uneven market liquidity distribution, manipulation by major funds, and an imbalance in investor structure; it is a product of a market that is not yet mature. As the market grows, the proportion of institutional investors increases, and global liquidity distribution becomes more balanced, the frequency and magnitude of this phenomenon will likely gradually decrease.
For investors, there's no need to panic excessively about overnight sell-offs, nor should they blindly follow the crowd. The key is to recognize its nature—in most cases, it's a tactic used by major players to shake out weak hands, not a signal of a trend reversal. Through proper position management, risk control, and strategic responses, short-term risks can be mitigated, while opportunities to accumulate shares at lower prices can be seized during these sell-offs. In the future, with improved market regulation and a more mature ecosystem, the cryptocurrency market will become more regulated, and this "market anomaly" of overnight sell-offs will gradually fade into history. Follow me @链上标哥 , don't get lost!
