25 January 2023 | ZebPay Trade-Desk
Capitulation means yielding. In financial terms, this reflects a hard selling period when the last few bulls surrender to become bears.
Suppose a crypto falls 30% overnight, an investor has two options: hold or sell to take losses. If most investors decide to take losses, there will be a sharp fall in price. Also, this selling pressure could lead to a price bottom if the bears run out of coins to sell. But while a capitulation is very difficult to predict and identify, there are some recurring market signals that can help traders prepare for it.
Some of those signals include
- Rapidly falling prices
- Large trading volumes
- Oversold conditions
- High volatility
- A significant drop in the number of major shareholders
- Negative market fundamentals
For example, the sudden collapse of FTX token FTT, the native asset of the defunct crypto exchange FTX, in November 2022 saw the most signs of capitulation as shown in the chart below.
Crypto assets, especially those with extremely low market caps and liquidity, will always experience increased volatility during capitulation. But crypto market caps aren’t always bad for investors. Rather, they provide a period of maximum…