Capitulation is when you sell your assets or cryptocurrencies at a significant loss because you have lost hope that they will increase in price.
In the world of finance and trading, capitulation refers to the act of giving up on an asset by selling it off at a price that is lower than what was paid for it. It is a conscious decision taken when one has analyzed the market conditions and believes that further losses are imminent.
Investing in both traditional stock markets and the more recent emergence of cryptocurrency is a risky venture. The prices of assets can fluctuate quickly and unpredictably, meaning that no trader can be sure whether their investments will yield good returns, or result in losses.
Cryptocurrency trading has its own unique set of risks that cannot be found in other forms of trading. Without a central governing body to regulate the market, it has become a prime target for manipulation, with drastic swings in the valuations of crypto tokens often occurring.
Cryptocurrency trading is characterized by varying degrees of volatility. When facing such a situation, investors may find it difficult to trust that the price of their asset will eventually recover, and instead decide to sell it for a loss – this is known as capitulation.
The past two years have been a tumultuous period for cryptocurrency traders, especially those invested in Bitcoin. At the start of 2021, the token reached an all-time high of approximately $61,000 per coin in April, but it soon plummeted in value mere weeks later. This downward trend caused a majority of Bitcoin investors to unload their holdings at a loss.
The combined selloff of these tokens created a chain reaction, exacerbating the price decline and causing further losses. Such capitulation on a global scale can also lead to market crashes and additional decreases in asset value.