Capitulation occurs, in cryptocurrency and traditional investing, when someone decides to sell off their remaining assets at a significant rate with the assumption being that the price will never rise enough to recoup funds.
While capitulation is not an exclusive occurrence in the cryptocurrency space, it does often happen with digital assets, and often with bigger impacts. The thing about cryptocurrencies that make them so enticing to invest in is the price volatility, but this can lead to major capitulation.
When someone invests in a cryptocurrency, they are hoping the price will rise significantly, and rapidly. However, as is the nature of the space, the price can equally fall rapidly and significantly. If the price does fall like this, investors can be left worried about further losses.
When the price of an asset falls, you are only really at a loss when you decide to swell, but the selling pressure of a falling price can lead an investor to make the decision to capitulate. This means they will sell their assets for a large loss, hoping to get back some money before it falls even more.
A user is said to have capitulated when they accept the loss they have made, and gain back what they can with the feeling that the market will not rise again.
Looking at different instances of capitulation, an investor in Bitcoin at the end of 2017 and into 2018 would have seen the price of Bitcoin go from $20,000 to $3,000. A lot of people would have panicked at this time and probably capitulated with the fear that Bitcoin would drop closer to zero.
However, it is all about a time period as, we all know now in hindsight, that Bitcoin has managed to rally to a new high of $64,000 in 2021. Considering this high volatility in the cryptocurrency sector, capitulation is way more likely to occur with crypto traders. Unfortunately, sometimes crypto tokens lose value quickly, and investors find it hard to believe that they will be able to wait out the drop, and still sell at a profit.
Once a decision is made that an asset should be sold at a loss, regardless of how much its value dropped, this is called a capitulation.
Capitulation is also often seen with smaller altcoins — which are oftentimes even more risky and prone to higher volatility. But, capitulation in these instances can sometimes save an investor some money.
There have been times where altcoins have fallen significantly and caused traders to capitulate and get some money out. These coins have been known to fall to zero and totally collapse meaning the capitulation at an earlier date from a trader was warranted and the best of a bad situation.