November 30, 2022
How to Respond to Capitulation
Dear Subscriber,
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| By Alex Benfield |
A defining characteristic of the crypto market is volatility.
On the upside, volatility opens the door for a plethora of golden opportunities, as fluctuations in price action are necessary for profitable trading.
This is best exemplified by crypto’s euphoric bull runs and blow-off tops.
Of course, there’s still a downside, and crypto is known for its fast-moving bear markets and massive sell-offs.
This characteristic volatility is also apparent in market sentiment, as investors become overly bullish when price action is going up … but extremely pessimistic when price drops.
The moment when investors become overly negative and bearish toward the bottom of the bear market is known as capitulation.
And we are currently in the middle of a capitulation moment in the crypto market.
The most obvious sign of capitulation is the sentiment surrounding the crypto sphere. This can come in the form of article headlines — both mainstream and within crypto publications — negativity on Twitter, blogs or forums.
This looming pessimism seems impossible to escape, and right now it’s stirring up a conversation over whether crypto is dead.
We have seen negative sentiment like this near the bottom of every single crypto cycle in history.
And it’s one of the clearest and most obvious indicators that the market is oversold.
Even Bitcoin (BTC, Tech/Adoption Grade “A-”) miners are giving way to the negativity and capitulation right now, as they’ve been selling their coins in the highest volume since the start of the bull run.
When miners are bullish, they’ll save some of their Bitcoin earnings and let the coins appreciate to sell at a higher price or store them on their balance sheet.
However, miners have expenses to pay to upkeep their operations. Because the price of BTC has sunk, they’ve needed to sell more and more coins to cover costs.
The chart below from Glassnode showcases this selling:
This chart also highlights how miners tend to sell more near the bottom of price cycles, like they did toward the summer 2021 bottom.
When miners begin to capitulate, that’s how you know the bottom is near.
Another sign of capitulation is the number of coins flowing into exchanges, presumably to sell.
Exchange inflows have now hit their highest levels since 2020 as more and more people capitulate.
Even the crypto whales — accounts with more than 1,000 BTC — aren’t immune to the negativity. The chart below shows whale withdrawal prices, which are represented by the yellow line:
The yellow 2017 whale withdrawal line — which represents the whales that have hit the 1,000 BTC threshold since the launch of Binance — is trading at $17,825. Meanwhile, BTC is trading at $16,760 today.
That means the 2017 whales are under pressure for the first time in years.
As a result, they’ve been depositing BTC onto exchanges in volumes of about 5,000–7,000 BTC per day, adding massive selling pressure to the market.
But here’s the reassuring takeaway from all this: Even though miners and whales are selling far more Bitcoin than usual, the price of BTC has held up surprisingly well since the FTX crash.
Should Bitcoin be able to withstand the selling pressure and climb back above the June low of approximately $17,700, that would be a big sign of strength.
What’s Next
So, what should you make of all this data?
In summary, capitulation is the moment of despair and negativity felt across the market right near the bottom in prices. This market and its investors are displaying all the traditional signs of capitulation right now, and everything you’re likely hearing about crypto in the media is negative.
However, this is absolutely not the time to turn bearish.
The moment of capitulation is right around the time when you want to start preparing yourself for what's to come.
Prices have either already bottomed out or are about to in the near future. If you believe in the future of the crypto industry — which I believe you do if you’re reading this article — then you also think prices and adoption of crypto will only increase over the years.
Putting those two pieces together would tell us that prices are bottoming out and will likely go up from here.
But by no means am I suggesting a bull market is coming soon. In fact, what comes next is probably a period of sideways trading for months.
But that’s exactly my point. Now is the time to prepare for that.
How? By positioning yourself for the next bull run … whenever it does come.
Take the time to research projects and trends — utilizing this ezine or our other crypto offerings, as well as on-chain data — to determine what to invest in now, while assets are still trading at discount prices.
And utilize dollar-cost averaging to get leveraged to your favorite cryptos without necessarily targeting the bottom.
It may take weeks or even months to build up your positions, but that’s OK. You’ll have the time as we anticipate another bout of sideways price action.
Best,
Alex
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