Capitulation is the process of selling assets or cryptocurrencies at a significant loss because you have lost hope or belief that it will ever increase in price.
Capitulation is the conscious decision to sell all or part of your assets at a loss because the price has dropped so much you don't believe it can go back up. In the traditional sense of the word, capitulation refers to the process of surrendering power, however in finance and trading, this term gets a rather different meaning.
Both traditional trading on stock exchanges, for example, and cryptocurrency trading comes with a significant amount of risk. Prices fall and rise, however, traders rarely have guarantees which direction their investment will take. Considering this, the scenario where your investment portfolio loses half of its value is not to be disrregarded.
Cryptocurrency trading is even more riskier, according to some, because of the decentralized nature of the market. A market that is not regulated by a central governing body is much more susceptible to manipulation or huge influences, and therefore, changes in the valuations of crypto tokens can be significant. Of course, most cryptocurrencies have an intrinsic value that cannot be dismissed with an easy hand. However, since Bitcoin launched in 2009, we have seen not one and two crypto winters and bear markets.
Considering this high volatility in the cryptocurrency sector, capitulation is way more likely to occur with crypto traders. Unfortunately, sometimes crypto tokens loose 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 capitulation.
The past two years, 2020, and 2021 have been a rollercoster of emotions for crypto traders, especially ones investing in Bitcoin. While the token hit an all time high in April 2021, its price quickly started falling only a couple of weeks after that. Because of the huge shift on the market, and Bitcoin’s underperformance, many investors decided to sell a poriton, or all of their holdings in Bitcoin at a loss. This mass sellout of Bitocin tokens led to a further drop in the price for one BTC. Unfortunately, when capitulation happens on a more global level, it can trigger further crashes in the price of the asset that’s being sold.