Dead Cat Bounce

Dead cat bounce is a phrase borrowed from Wall Street, where it described stock rebounds during the 1985 Asian market slump and later the dot-com bust, on the grim logic that "even a dead cat will bounce if it falls from a great height." In crypto, the same pattern appears whenever a token collapses, stages a sharp but shallow recovery, and then resumes its slide, often breaking below the prior low.

The bounce is usually driven by short sellers closing profitable positions, bargain hunters betting the bottom is in, or thin order books letting a modest buy order move price disproportionately. Because trading volume during the rebound tends to be weak compared with the preceding sell-off, and momentum indicators like the RSI recover without clearing 50, the rally lacks the conviction of a genuine correction or an actual trend reversal.

Bitcoin's 2018 unwind from its near $20,000 peak included several rallies that briefly convinced traders the worst was over, before prices fell further toward $3,000. Terra's LUNA token showed the same behavior during its 2022 collapse, bouncing repeatedly on its way to becoming worthless. Because a dead cat bounce is really only confirmed in hindsight, once price breaks the prior low, it is easily mistaken at the time for a bull trap or a genuine bottom.

Traders try to avoid getting caught by checking on-chain activity, funding rates, and volume rather than price alone before treating any rebound as the start of a new uptrend.