cointelegraph.com
To capitulate literally means to yield. In finance, the term reflects a period of aggressive selling when the last bull admits defeat to become a bear himself.
What is a crypto market surrender?
Let's say a cryptocurrency drops 30% overnight. An investor has two options: he can continue to own or sell to realize his loss.
The price would fall sharply if most investors decided to realize their losses. Additionally, this selling pressure could lower the price if the bears eventually run out of coins to sell.
Although a capitulation is very difficult to predict and detect, there are some recurring market signals that can help traders prepare for such an event.
Crypto market capitulation usually includes most of the following conditions:
Rapid price decline
High trading volumes
Oversold conditions
High volatility
Large decline in the number of large holders
Negative market fundamentals
For example FTX crash. (FTT), an asset of the defunct crypto exchange FTX, followed the most bearish signs on November 2, 2020, as shown in the chart below.
Cryptocurrencies, especially those with very low market capitalization and liquidity, always see higher volatility when they are stripped. But crypto market capitulation is not always a bad thing for investors. On the contrary, they bring the period of greatest profit potential when the asset price falls.
But the capitulation of crypto markets is not always a bad thing for investors. On the contrary, they bring the period of greatest profit potential when the asset price falls.
For example, Bitcoin (BTC) and Ether (ETH) have experienced several market capitulations over the past eight years involving large sales volumes and low prices, such as the market crash of March 2020.
What is the meaning of a crypto market capitulation?
Many experienced traders and investors see the capitulation of the crypto market as a prediction of a price bottom. Therefore, they prefer to accumulate in bear markets, where they dampen selling pressure and create a basis for a possible reversal.
Related: Here are three ways to use the Relative Strength Index (RSI) as a sell signal.
In addition, capitulation in the crypto market usually eliminates short-term sellers and gradually shifts momentum to entities with long-term growth prospects, since almost everyone who will sell has already done so.
This is usually reflected in a continuous increase in the supply of Bitcoin in addresses for more than six months and is called old coins.
Also Read : The Next Shiba Inu Hype
Glassnode Research notes that these coins are less likely to be consumed on any given day, noting:
The amount of old coins usually increases during downtrends in the market, reflecting a net transfer of coin wealth from newer investors and speculators back to the patient. a longer period of time. . heat investors (HODLers).
Finally, timing a market bottom during a surrender event is extremely difficult, as the process can take months, if not years, as happened with Bitcoin in 2014-2016.
Traders typically rely on historical data and past market bottoms to predict potential capitation events using a myriad of metrics and indicators.
This article does not contain investment advice or recommendations. Every investment and business move involves risks and readers should do their own research before making a decision.
Source: cointelegraph.com
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