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The dread of greater losses in what seems like an endless downward spiral is what drives the capitulation of the cryptocurrency market, but it's also the best time to invest.
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By definition, to capitulate is to give in. This phrase refers to a moment of strong selling in the financial world when the last few bulls give up and turn into bears.
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Say the value of a coin declines by 30% over night. The only choices left to an investor are to keep holding or sell in order to realise losses.
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If the majority of investors choose to take their losses, the price would drop significantly. Additionally, as the bears finally run out of coins to sell, this selling pressure may result in a price bottom.
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Even so, there are a few recurring market signs that might assist traders get ready for a capitulation even if it's quite challenging to foresee and spot one.
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When the FTX Token, the primary asset of the now-defunct crypto exchange FTX, abruptly crashed in November 2022, there were several signs of capitulation. The graph below illustrates this.
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Cryptocurrencies will always see higher volatility during capitulation, particularly those with extremely low market capitalisation and liquidity.
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But capitulations in the cryptocurrency market are not always terrible for investors. Instead, as the asset price bottoms out, they usher in the window of greatest profit potential.
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But capitulations in the cryptocurrency market are not always terrible for investors. Instead, as the asset price bottoms out, they usher in the window of greatest profit potential.
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A series of market occurrences, including the market crash in March 2020, have been followed in the recent eight years by substantial sell-volumes and price bottoms.
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