The NEED for CRYPTO to CAPITULATE
CAPITULATION is still the word on everyone's lips in the crypto world
When will it be? How low will it go? How high will it bounce back? What happens afterwards?
It is generally accepted that capitulation will occur. Generally.
By Brian Carlson, from https://www.flickr.com/photos/bk2204/475332962 , shared under the
CC BY-SA 2.0 license ; modified by Bit Brain
The NEED for CRYPTO to CAPITULATE
I've blogged about capitulation. Only two days ago I predicted that capitulation is imminent! But I must be honest - I have my reservations.
A word of warning
It is all to easy for traders/investors/analysts to become confused at times like this. The hype that price increases causes is a dangerous thing! Let me state this, and state it very clearly: IN ALL LIKELIHOOD THE CURRENT MARKET POSITIVITY IS PROBABLY JUST A DEAD CAT BOUNCE / BULL TRAP. IT WILL NOT LAST AND CAPITULATION WILL STILL OCCUR. Okay, with that out of the way.
Let us now entertain the "but perhaps..." scenario.
I don't like capitulation
The very idea of it has never sat well with me: "the market must dive down to rock bottom before it can climb again". Okay, fine - but WHY?
Since my previous capitulation post I have been asking myself that question over and over again.
As I remarked in a reply to a comment on my last capitulation post:
Ironically I still don't see the need for a capitulation event - perhaps I need to do more research into market psychology.
So I have been digging around trying to get to the truth behind this potential capitulation event. This post is about what I've found (at least so far).
An alternative pattern
Instead of the sharp down/up capitulation event which is generally expected, perhaps capitulation can take another form.
I think that it is plausible that Bitcoin (and by extension cryptocurrencies - true throughout the rest of this post too) may possibly be in the process of creating the rather rare reversal pattern known as a "Rounding Bottom". A Rounding Bottom would look something like the yellow/green line from this chart: (from this post last Friday)
Made by Bit Brain with TradingView
Because it is a relatively unfamiliar pattern, here is a link to the Investopedia article on it. Give it a quick read and tell me what you think of this possibility: https://www.investopedia.com/terms/r/roundingbottom.asp
Strictly speaking this isn't "capitulation", though seen in the broader context and including the BTC fall from the long-held $6000 level, you could argue it either way.
Capitulation already happened and most people missed it
I acknowledge how silly this may sound initially, but hear me out. Bitcoin has dropped in value from about $20000 to about $3200 within a year. That is AN 84% DROP IN VALUE. Ask yourself: What do you expect of capitulation? Do you realistically expect a greater drop than that?
I can help you there too: take an old favourite of mine - NEO. From about $195 to $5.50 in exactly 11 months. That leaves NEO worth ONLY 2.82% of what it once was! And you STILL want more "capitulation"?
Many of my alts look like NEO, some even worse! Our once proud $835 BILLION cryptocurrency market became a $100 billion market - only 12% of its once total worth. In any other asset class we wouldn't just call that "capitulation" - we'd call it "obliteration" and cease trading it altogether!
...and then the market bounced off long-term support on 15 December...
Did you see it?
I warned you in The time to CAPITULATE is NOW! that very long-term support was a hair's breadth below the trading price of BTC
"we can see on the chart below just how close that is – we are practically at that level now!"
"It is highly likely that a capitulation even can and will now occur at any time."
"It will probably take only the smallest of catalysts to set it in motion."
A catalyst like the "one year since BTC peaked at $20000" event...
Here is the picture I included in that post:
Made by Bit Brain with TradingView
I had tried in that post to get the trendlines as accurate as possible, difficult due to the long time periods. Fortunately I kept those chart constructions, so I can show you a (zoomed in) version of what that chart looks like today and just how close we got to my long term capitulation event trendline:
Made by Bit Brain with TradingView.
80 dollars. That's all we missed it by. Taken from a point of origin almost 4 years back (see the linked post for a full diagram), that's well within the margin of error and the limits of TA accuracy!
So if we can accept that we don't have to have a sharp dip-and-bounce capitulation event, then perhaps we can accept that the time for capitulation already passed us earlier this week...
Volume
When prices started climbing on the weekend, volume did not. I immediately dismissed the climb as insignificant, BUT, then volume DID start to climb on Monday. Late yesterday it wavered a little, and then resumed climbing. It's basically doubled in three days! That's significant!
Bitcoin volume over the last four days. From https://coinmarketcap.com/currencies/bitcoin/
Altcoin volume over the last four days. From https://coinmarketcap.com/charts/
TA vs FA
We can't rely on a large capitulation dip just because TA says it happened before, or because such events are often visible parts of the market cycle. Once again we must ask - from an FA perspective - do we need to capitulate now? TA should have little to do with that assessment. I think @newageinv (he's a great blogger, read this for instance) said it best when he commented on my most recent post:
"I like to think of fundamental analysis as to why to invest and technical analysis as when..."
The "why" applies just as much to capitulation as to investment.
I can't deny the evidence is stacking against me
Arguing in favour of a capitulation event last Saturday (That was not a Bitcoin Double Bottom), I published this chart:
Made by Bit Brain with TradingView
Perhaps unfortunately for me, I kept that exact chart construction in TradingVIew for follow-up analysis. This is what it looks like today:
Made by Bit Brain with TradingView
Whoopsie daisy! BTC did exactly what I said it would not! Which implies that this was a double bottom - a reversal pattern.
Now that doesn't automatically negate what I said in the post, the reversal may only be short-term, but it does go against what I expected and it has climbed two or three levels higher since then.
Once again: note that a Dead Cat Bounce does explain this scenario - so be careful!
Market expectation
At the end of the day the markets always come down to market expectation: what do the traders expect the market to do.
Every market is really just a self-fulfilling prophecy: People expect prices to rise - people buy - so prices rise; and vice versa. I feel that the market IS expecting a capitulation event, BUT in the highly unpredictable, young and exciting world of crypto, things can change very fast and in unusual ways. A few whales can also easily sway the entire market - made all the more possible by the relatively small volumes required to affect a crypto market, especially when crypto prices are so cheap!
The important thing to remember with market expectation is this: while it leads the market, it can change very suddenly! Just look at how rapidly it changed from bullish to bearish in December 2017/January 2018!
Conclusion
I'm still expecting a capitulation event - for now. I'm open to the possibility of there not being one and that it isn't necessary for the market to have one. I think it is possible that a "soft" capitulation may already have occurred. But until we have further confirmation - I assume the current uptrend to be a Dead Cat Bounce.
Yours in capitulated crypto
Bit Brain
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Published by BitBrain
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Capitulation isn't wanted, nor needed, but it's highly probable.
The reasons aren't that complex.
TA does not work in itself, but it does work because the majority of money is invested based on TA. Everybody is looking at the same charts, making the same calculations and basing their investment behaviour on them. You're essentially predicting what other people are predicting based off the same charts.
Think of it this way. If there's a chance of 50% on a roulette table of it going up or down, and one person declares that he has found a pattern in historical charts that show that based on some indicators it is 1% more likely to go down. All things being equal, even without proof of this actually being the case, it makes more sense to put your money on black. In this way it becomes a self-fulfilling prophecy because it will result in a slightly larger amount of people following this theory than not. As a result the chances of going down actually occur. This strengthens the theory more, bringing more people to follow this TA, making it even more true.
Now consider that there is NO reason for a break-out to occur at the end of triangles, other than humans deciding that the end of a triangle is an indicator of some sort which makes one result more probable than the other. This is entirely based off of historical patterns. Once this pattern has entered the hive mind of investors new patterns will emerge and be detected. Eventually you end up with a giant mess of indicators like we have now that make no actual sense and contain no true logic. But since everybody is abiding by these made-up rules and are trying to out-win everybody else, they are 'making the pattern come true' so to speak.
Since a large part of big money uses TA and likes to play a near-zero-risk game, they do not act unless they feel the risk as as low as possible.
As long as you still have a large part of people believing the TA doesn't match up yet - you're simply missing part of the herd. And the entire herd is what is needed to move the charts. In other words, we need to go down to convince the bears that it's time to stop being bearish and turn bullish
And lastly, speculators are being driven out of the market. People who do not understand bitcoin and more importantly, people who are weak hands. Weak hands are prey for big money. And if you scare them enough you can take their money. This is what billionaires do. George Soros almost made the UK economy crash entirely in the 90's by secretly buying up billions worth of UK bonds and dumping them at a crucial moment in the market, causing a spree of panic-selling and making him a billion dollars in a day at the expense of panic-sellers. The same is going on in Bitcoin. It has been my suspicion that this is why the OTC market is so big.. You buy there, to eventually dump on the exchanges and crash the price. The lower you drive the price, the more people will panic-sell and capitulate. You can do this to the absolute bottom, to the point where nobody even wants to touch it anymore. While $3K seemed a nice bottom, I feel like the spirits will be truly crushed if we go even lower. Every last single seller needs to be out of the market, simply because there WILL be somebody who is greedy enough to make this power-move.
It's all a game of bluff. Much like that oldschool 'Game of Chicken' game where two cars drive toward eachother until one chickens out. When the bottom is in all the chickens will be gone and only the people willing to drive themselves into a wall, or those who don't care anymore because they already lost so much, will be left. At that point there is no-one to take money from left in the market. No way to go but up.
Nobody wants to crash and have a deep bottom. But it's just how psychology and 'the market' works...
Those who play the game well end up with more dollars or more bitcoin, kind of like a giant game of wash-trading bubble after bubble. Those who don't will get shaken out and leave with losses. Once you really grasp the kind of game it is, the HODL mentality and indeed the whole reasoning behind the post from which it originated become clear. It's simple: The game is rigged unless you have enough money to manipulate. If you're trying to go head on and out-smart them by timing the market you will fail and get rekt. The only way to win is to not play their game.. You simple forego the fomo and fud and go long term and hodl. If you know it's going up then that's the only way to truly beat the game. Just HODL, and when it goes down big time you DCA and BTFD. There is so much truth in these memes!
My goodness Pandora, thank you for the complete reply!
Thanks for the mention! I think that it will be determined by the amount of supply that comes in at higher prices as people who missed seeking from $6k to $3k will still look to get out...
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