Capital Rotation

Capital rotation is the process where investors move funds from one asset class or sector to another to capture better returns or reduce risk. This often happens as a result of changing economic conditions, shifting narratives, or varying growth prospects between sectors.

In the crypto ecosystem, capital frequently rotates from large-cap assets like Bitcoin to mid-cap or small-cap altcoins, or from one protocol category to another, such as from decentralized exchanges to lending platforms. Identifying these rotation patterns can help traders position themselves ahead of sector-wide rallies.

It requires monitoring on-chain data, social sentiment, and macro indicators to predict where the next wave of liquidity will flow. Mastering capital rotation is a key skill for active portfolio management in a dynamic market.