The distribution phase occurs near cryptocurrency market tops when early investors and smart money systematically sell their holdings to late-arriving retail buyers. This stage is marked by extreme euphoria, mainstream media saturation, your barber giving crypto advice, and high volatility as prices make new all-time highs while experienced traders exit. Distribution can last weeks or months and often precedes major corrections of 40-80%. Recognizing distribution is critical for profit-taking before the crash.
Example:
In November 2021, Bitcoin hit $69,000 as celebrities promoted crypto on TV, retail investors opened record numbers of exchange accounts, and "laser eyes" Twitter profiles peaked. Meanwhile, on-chain data showed whales and long-term holders were selling to the new wave of buyers. This textbook distribution phase preceded an 80% crash to $15,000 over the following 12 months. Traders who recognized the distribution signals took profits, while those caught in euphoria held through massive losses.