Capitulation? What Caused This Bitcoin Sell-Off?

Around $60 Billion has been wiped out from the overall crypto market cap in the last few days. Many experts think that with this decline the crypto market finally found the bottom or at least near it.

Characterized as a time of discouraged movement and feeling, the bear market has seen the price of bitcoin, the world’s biggest digital currency, decrease more than 75% from the ATH in December 2017. Since bitcoin makes up 50% of the whole market capitalization, it’s logic to state that the bear market may end when bitcoin bulls stop giving more ground to the bears.

Many think that in order for a trend reversal a capitulation needs to happen, which is usually the last stage of a long bear market.

A capitulation is a large scale panic selling which is characterized by a spike in volume which builds momentum until the bottom is found. When this happens the asset looks undervalued and this prevents it from falling furthermore.

The most violent capitulation in Bitcoin happened in 2015

Between 2013 and 2015 bitcoin faced a long bear market which started in November 2013 after the price reached the $1,163 mark and then dropped by 86% in January 2015 hitting the $152 mark.

Since that day the price never got under that mark and if this is a true example of a real capitulation we can see 2 important factors in this capitulation: volume peaks and fast price decline.

The chart above illustrates the event and is clearly seen how the sell of accelerates backed by the spike in volume. In January 2015 the panic in market reached the peak and only in 4 hours the price dropped by 30%, that was backed by the highest volume compared to several months before the event. This extreme sell of created a climax which tends to form the market bottom where fear was meet by demand and the price was considered too cheap to decline more.

What is happening with Bitcoin at the present time?

As we can see in the chart below, a large scale sell-off is happening but till now has been slower than the 2015 capitulation.

It is clear from the charts that the sell of this time is not comparable with the 2015 capitulation since in 2015 we had a 30% decline in a 4-hour candlestick and the actual price drop did not have more than a 10% drop in a 4-hour candlestick.

It is clear that the volume increased compared to the few past months. All these are signs that at least a temporary bottom was found.

To support the bottom creation we have also an engulfing bullish candle. A candle is considered bullish engulfing when the green candle covers all the body of the previous red candle. The bullish engulfing is a sign of the bottom creation. The higher is the timeframe we see this pattern the more powerful it is.

It is important to note that capitulation does not reverse immediately. The 2015 capitulation took 10 months to start an uptrend.

Extreme events like that of 2015 are uncommon so it’s nearly impossible for the same market situations of 2015 to be applied to the market conditions of the present time.

Crypto Market fundamentals

Some analysts pointed to the uncertainty surrounding the BCH hard fork to be causing the sharp drop in bitcoin price. But in general, there was no negative news about crypto the last week to justify the fast price drop. Otherwise, there was positive news like the ETP approval in Switzerland.  So what caused the sudden price drop?

Bakkt released an official announcement yesterday about postponing the launch to 24 January 2019. We all know how much the crypto market is prone to market manipulation. It would not be a surprise that news about Bakkt postponing the launch was released to some big players before the official release yesterday.

Disclaimer: This is not an investment advice, don’t invest what you can’t afford to lose. Don’t use margin. Don’t borrow money to buy crypto.

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