Long-term readers know I’m cautious about calling a crypto market bottom. The market is still up big from one year ago, and these things tend to overshoot up and down.

But… I’m starting to see signs of “capitulation.” Capitulation occurs when the last big batch of “fence sitters” finally surrender and sell.

Markets are ultimately about psychology. In crypto, there are really only two prominent “groups” of owners…

  • Longer-term “hodlers” who believe a monetary revolution is possible (retail and professional)
  • Shorter-term speculators (retail and professional).
  • The capitulators are (by definition) the short-term speculators. These investors usually wait for the price to return to near the all-time high so they can sell. They calculated their gains back during the highs and want that money “back”.

    When the market doesn’t bounce back within a few months, capitulators get frustrated and sell en masse. They think they may never get a chance to sell higher. (This is most people’s default reaction. It has to be overcome consciously – hence hodl.)

    Capitulation causes a cascade of panic selling (like we may have seen this week).

    I’ve seen more real fear on Twitter and Reddit this week than I’ve seen in years. A lot of messages are along the lines of, “OMG I’m selling it all, I hate this market.” Or, “OK, I’m done. It’s over.”

    If the asset is desirable, savvy investors step in and buy at this point. And crypto (especially bitcoin) is desirable.

    I feel for the folks watching crypto prices dive – especially for the first time. These cycles are brutal, and you have to withstand the pain to experience the gain.

    Only Quality Coins Will Bottom

    I want to be clear about one thing: Bitcoin and a few select altcoins are the only cryptos I see bottoming anytime soon. There are still a lot of overvalued projects out there.

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