Capitulation In Bitcoin And Reset On The Market At $30k

Capitulation is the act that determines the conditions for the surrender of a troop. In war, it is about an agreement to surrender to a hostile armed force. The capitulation can be understood as the exact moment when a troop gives up the battle and gives everything it has to its enemies.

In the financial market, “capitulation” describes the moment when investors give up their earnings, assets, and bonds, exiting their positions during periods of decline. That’s when investors “surrender” to the low during the “panic” of the market.

Capitulation typically happens during large spikes in trading volume and prolonged drops in price. A market correction or bear market often causes investors to capitulate or panic on the sale.

A good way to capture the essence of capitulation is with Warren Buffet’s famous phrase, “The stock market is a device for transferring money from the impatient to the patient.” When the market panics, capitulation takes place, transferring substantial amounts of money from first-time investors to experienced, patients, and long-term investors.

Capitulation in Cryptocurrencies

Capitulation in the cryptocurrency market can be even more dangerous than in the traditional equity investment market. Bitcoin and cryptocurrencies are assets with great price volatility. During the bull market, it is common for cryptocurrencies to make 2-3-digit gains in a few weeks, attracting inexperienced investors very hungry for quick profits.

Year after year history repeats itself. Battalions of investors enter cryptocurrencies during historic highs and sell during falls.

In May 2021, we experienced one of the most violent episodes of capitalization in Bitcoin history. After a string of negative news hit the industry (Twitter Elon Musk, China Ban, regulations pressure on Binance), the price of Bitcoin dropped by more than 30%.

According to the report published by Glassnode, the May 19 capitulation caused investors who bought Bitcoin between $55-60K to sell during the fall, taking a loss of more than $4 Billion in one day and $14 billion in a week.​​

Capitulation in Cryptocurrencies

However, the most interesting thing to analyze in this capitulation is who surrendered to it. Short-term investors who were buying cryptocurrencies between February and May were the investors who panicked and sold in the fall.

Coin holders aged between 1 and 3 years were spending their coins much earlier, selling Bitcoin in the first few months of 2021. When Bitcoin fell and the market correction began to pick up, only then did long-term holders start to buy the asset again.

Reset of the market

After the capitulation in May, the market began to experience less and less volatility, despite its continued decline in price. However, Bitcoin whales have re-accumulated Bitcoin for the first time since February 2021.

bitcoin whale holdings

Unlike retail investors, whales behave almost inversely correlated with the price of Bitcoin.

The graphic above, provided by Ecoinometrics, shows this behavior very clearly. When the price of Bitcoin first hit US$30-40K, whales began to divest themselves of their positions.

Whale sales continued until the May capitulation, when a reset was made.

When the price of Bitcoin got back to $30k – the starting price for selling the whales in February – they started accumulating Bitcoins again.

Data provided by Coinmetrics show that when Bitcoin hit the previous cycle’s ATH of $20K, small investors began to accumulate Bitcoin, while some larger investors proceeded to sell.

Whales, on the other hand, increased selling pressure when the BTC/USD hit $30,000 for the first time. So the $30,000 has become a key level for whales to realize their profits. It is worth remembering that at this level, Bitcoin had already returned more than 900% to investors in one year.

Unlike most retail investors, who often enter and hoard Bitcoin during a cryptocurrency market euphoria, savvy investors enter the market when the spotlight is off.

The May 19th capitulation event and the whale accumulation charts show how caution and patience in the market are essential for good results. As the sages say, buy the dip.

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