The capitulation of the cryptocurrency market revolves around investors’ fears of further losses in a seemingly never-ending downward spiral, but it’s also the time of maximum opportunity.
Surrender literally means yielding. In finance, this term reflects a period of aggressive selling when the last few bulls concede defeat to turn bearish themselves.
What is the crypto market cap?
Say a cryptocurrency falls 30% overnight. The investor has two options: He can continue to hold or sell to realize the losses.
Should most investors decide to take their losses, the price would fall sharply. Additionally, this selling pressure could lead to a price bottom as the bears eventually run out of coins to sell.
But while it is very difficult to predict and identify a breakout, there are some recurring market signals that can help traders prepare for such an event.
A crypto market cap typically includes most of these conditions:
Rapid price drop
Large transaction volumes
Oversold conditions
High volatility
A sharp drop in the number of large owners
Negative Market Fundamentals
For example, the sudden collapse of the FTX token
FTT
ticker below
$0.92
, the native asset of former crypto exchange FTX, accompanied most signs of capitulation in November 2022, as illustrated in the chart below.
FTT/USD daily chart. Source: Trade View
Cryptocurrencies, especially those with extremely low market caps and liquidity, will always experience greater volatility during capitulation. But crypto market caps aren’t always bad for investors. On the contrary, they bring the time of maximum profit opportunity when the asset price hits its bottom.
But crypto market caps aren’t always bad for investors. On the contrary, they bring the time of maximum profit opportunity when the asset price hits its bottom.
For example Bitcoin
Bitcoin
ticker below
$16,832
and ether
ETH
ticker below
$1,221
have experienced several market capitulation events over the past eight years, accompanied by large sales volumes and low prices, such as B. the stock market crash in March 2020.
What does a crypto market cap mean?
Many seasoned traders and investors see a crypto market capitulation as a harbinger of a price bottom. As a result, they prefer to accumulate during a falling market, thereby absorbing pressure from the sell side and laying the groundwork for a potential bullish reversal to come.
Related: Here are 3 ways the Relative Strength Index (RSI) can be used as a sell signal
Additionally, a capitulation in the crypto market typically removes short-term sellers and gradually shifts momentum to companies with long-term upside prospects, as almost everyone who has wanted to sell has already done so.
This usually results in a steady increase in the supply of bitcoins held by addresses longer than six months, known as “old coins”.
The old bitcoin supply has been active for over 6 million. Source: Glassnode
According to research by Glassnode, these coins are less likely to be issued on any given day, which found the following:
“Old coins typically increase in volume during market downtrends, reflecting a net transfer of coin assets from new investors and speculators to longer-term patient investors (HODLers).
Ultimately, timing a market bottom during a capitulation event is extremely difficult as the process can take months or even years, like Bitcoin did in 2014-2016.
Traders typically rely on historical data and previous market lows to anticipate potential sell-off events using a variety of metrics and indicators.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
