The crowded trade problem is one of the more counterintuitive risks in markets.
The common assumption is that if a lot of smart people are in the same position, that position is probably correct. The analysis is sound, the thesis is well-constructed, and broad agreement seems like validation. But what crowding actually does is change the exit dynamics entirely.
When everyone is on the same side, the position works until it doesn't, and when it doesn't, the exit is simultaneous. There's nobody to sell to except other holders who are trying to exit for the same reason. The fundamental thesis can be completely right and the position can still produce a painful drawdown purely because the unwind is simultaneous and there's no incremental buyer to absorb it.
The most dangerous trades in crypto are the ones that feel safe because everyone agrees with them. The consensus is often correct on direction and catastrophic on timing, because the consensus getting in is what makes the eventual unwind violent.
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