Surrender literally means giving up. In the financial realm, this term reflects the period of the sell-off when the last bulls admit defeat and become bears themselves.
What is the cryptocurrency market capitulation?
Assume that the cryptocurrency is down 30% overnight. The investor is left with two options: he can continue to hold or sell for losses.
There will be a sharp drop in the price if most of the investors decide to cut their losses. In addition, this selling pressure may result in a price bottom as the bears eventually run out of coins to sell.
But while it is very difficult to predict and spot a capitulation, there are some recurring market signals that can help traders prepare for such an event.
Cryptocurrency market capitulation usually includes most of these terms:
Rapid collapse in prices
Large trading volumes
Significant decrease in the number of adult holders
Negative market fundamentals
For example, the sudden collapse of the FTX token
, the original parent of the defunct cryptocurrency exchange FTX, in November 2022 accompanied the most signs of giving up, as shown in the chart below.
FTT/USD daily price chart. Source: TradingView
Cryptocurrencies, especially those with very low market capitalization and liquidity, will always experience more volatility during capitulation. But concessions in the cryptocurrency market aren’t always bad for investors. On the contrary, they bring in the period of maximum profit opportunity as the price of the asset falls.
But concessions in the cryptocurrency market aren’t always bad for investors. On the contrary, they bring in the period of maximum profit opportunity as the price of the asset falls.
For example, Bitcoin
There have been several market capitulation events in the past eight years, accompanied by large selling volumes and price declines, such as the March 2020 market crash.
What is the significance of the cryptocurrency market capitulation?
Many experienced traders and investors see the capitulation of the cryptocurrency market as an indication of a price decline. As a result, they prefer to accumulate while the market is down, thereby absorbing sell-side pressure and creating ground for a possible bullish reversal in the future.
Related: Here are 3 ways the Relative Strength Index (RSI) can be used as a sell signal
Additionally, cryptocurrency market capitulation usually removes short-term sellers and gradually shifts momentum to long-term bullish entities because everyone who was about to sell has already done so.
This is usually reflected in a sustained rise in the supply of bitcoins held by addresses for more than six months, dubbed “oldcoins”.
Last active old Bitcoin bid >6m. Source: Glassnode
These coins are less likely to be spent on any given day, Glassnode’s research found, noting:
“Old coins typically swell in volume during down market trends, reflecting the net transfer of currency wealth from new investors and speculators, to long-term impatient investors (HODLers).”
Ultimately, the timing of a market bottoming out during a capitulation event is very tricky as the process can take months, if not several years as is the case with Bitcoin in 2014-2016.
Traders typically rely on historical data and previous market bottoms to anticipate potential capitulation events using a myriad of metrics and indicators.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.