Signals of capitulation and bottoming in Bitcoin price

Charlie Taylor


Glassnode report indicates possible signs of market capitulation and compares Bitcoin’s current momentum with past cycles.

Capitulation signals and graphic background in BTC

According to studies of market cycles and behavior, many investors argue that the final moment of a bear market, also known as a bear market, large traders, with high conviction about the asset, who held on during the worst moment, may end up selling. at the loss, realizing the losses. This event is called capitulation and it can occur by forced liquidation of leveraged positions; financial need; emergencies; cash flow requirement or other miscellaneous reasons. Either way, the capitulation period normally precedes the rage period and would be the final two phases of the fall, forming the price bottoms (the lowest price in the cycle, after an all-time high or top) and preceding the beginning of the market rally. .Passfolio

Glassnode’s report for the 28th week of the year picked up some signs of capitulation taking place at this time, in addition to other signs of bottoming out.

Price retreat after ATH

Before getting into more specific signs, it is worth noting what happened in relation to the loss of capital in the previous cycle, in the crypto winter of 2018. From the all-time high of 2017, to the end of 2018, there were 11 months of drops in the price of Bitcoin, with a period of indecision and lower volatility in the $6,000 range, which created a kind of chart support. Something similar has occurred from the double top of 2021, in a 14-month period of declines, to some stability in the $30,000 range. This moment, in cycle theory, is called “denial”, when many still believe it was just a natural correction and a great opportunity for accumulation. And then comes the “panic” following.

Graphic: "Bitcoin: Price Retreat from Historic High"“Bitcoin: Price Retreat from Historic High” Source: Glassnode In 2019, the “panic” occurred with the breakout of the price support at $6k and possibly with the breakout of $30k in 2022. Which led to a 50% drop in a very short period of a month , within 4 months of accumulation following the last cycle. In the current one, it is possible that panic took over the market with a drop of around 47% in the same period of one month after losing support. What followed for the next 3 months in 2019 was a period of capitulation where some investors who did not intend to sell surrendered to the crypto winter, taking losses on their equity. The timeline matches the current moment and some signs indicate that this may be happening, as already reported on Cointimes:

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Addresses continue to spend coins at the loss

Several on-chain indicators have shown that addresses have started to spend old coins, to the detriment. Something very similar occurred in the same period of “capitulation” and “anger” at the end of the 2016-2019 cycle. One of these indicators could be the SOPR, on an average of 30 days, which shows this act of moving coins on the blockchain to another address (spending the coins) at a lower price than the BTC was when these coins arrived at the address in a first moment.

Graphic: "Bitcoin: SOPR (30d Moving Average) of Long-Term Holders"“Bitcoin: SOPR (30d Moving Average) of Long Term Holders” Source: Glassnode According to SOPR, long-term holders have realized about 33% losses this current week.

Signs of capitulation for miners

Another important source of market information for Bitcoin is the miners, responsible for the creation and distribution of new coins, being the only ones benefiting from the BTC inflation of around 1.7% in the current halving, in exchange for keeping the network safe through of the Proof of Work. This inflation, with the dumping of new coins on the market, has little effect on the price of Bitcoin in high moments, since the demand for the asset is usually at very high levels, but it is in the bear markets that the constant selling pressure from the increase in offer can be an inconvenience. On-chain indicators show that miners are in a time of capitulation, illustrated by the “Miner Capitulation” which is calculated using a combination of the other two key figures. The first (PM) which measures miners’ revenues in BTC/USD compared to a 12-month average; And the second (ribbon) which can show when part of the hashrate is being turned off, decreasing mining difficulty.

Graphic: "Bitcoin: Tracking the Capitulation of Miners"“Bitcoin: Tracking Miners’ Capitulation” Source: Glassnode Spikes in indications of capitulation by miners, according to this metric above, coincide with the end of previous bear markets and we are starting to see these signals now.

Conclusion

Analysts are rarely able to accurately hit tops and bottoms, but signals can help investors make good decisions. By all indications, we are getting very close to the bottom of this current cycle and should see a rally soon, but the price can always fall further and past events are no guarantee of future events.

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