Capitulate definition would be when panic selling impacts the majority of equities on the market as a whole. When the majority of the market starts to lose value, as typically happens during bear markets and corrections, this happens.
Investors may start selling their stocks and reinvesting their proceeds in more secure investment options like preferred stock, precious metals, corporate bonds, or government bonds if the majority of equities have been declining gradually.
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This can result in worse price declines, which might make other investors fearful and prompt more selling, and so on. A market-wide recession may even happen when the psychological impacts of unrealized capital loss are severe and pervasive enough, albeit this is uncommon.
What does capitulate mean in crypto?
To define capitulate we should mention that when investors or traders liquidate their existing long stock positions amid a protracted stock price downturn, a capitulation happens. You could think of it as the point at which traders or investors give up on their long positions and accept losses.
The word “capitulate,” which comes from the military, denotes abandonment or surrender. In the context of finance, the phrase refers to a scenario in which traders/investors abandon long positions that are already losing money and sell out of concern that the stock price will continue to fall. In the ultimate phase of panic selling, capitulation, people sell at any price to ease the pain of what seems like constant pressure to sell.
Consider a trader who holds a stock with a high conviction that has lost 15% of its value since the trader first bought it. The investor has two choices. The first one is to wait in the hopes that the stock price will rise. The second one is accepting a loss by selling. The trader would have essentially “capitulated” on their position if they chose to sell the stock, which is already down 15%.
Capitulation can take place on a personal level, as in the aforementioned case, or on a market level, known as “market capitulation.” Market capitulation is a scenario in which the majority of traders/investors sell their positions, resulting in panic selling on the whole market.
One instance of such an occurrence is the 40% decline in the market value of all cryptocurrencies in May 2021 as a result of unfavorable news from China.
Capitulate stock market
Many elite investors and traders view a crypto market surrender as a sign of an impending price bottom. Because of this, they prefer to buy during a bearish market, absorbing sell-side pressure and laying the foundation for a potential positive turnaround in the future.
Additionally, short-term sellers are often eliminated after a crypto market collapse. Since practically everyone who was intending to sell has already done so, the impetus progressively moves to companies with a long-term uptrend outlook.
Capitulate meaning is demonstrated by a steady increase in the supply of “old coins,” or BTC kept by addresses for more than 6 months.
In the end, it is very impossible to predict when a market will bottom out during a capitulation event because the process might take months or even years.
Traders use a variety of metrics and indicators to forecast probable capitulation occurrences based on historical data and previous market bottoms.
How to spot the capitulation?
Sadly, there is no agreed definition of capitulation. Instead, we can create an image using a variety of distinct signs. These may include technical parameters like market volume, volatility, and momentum as well as psychological and economic indications. It is challenging to draw conclusions from many of these indications because there is often not a single, clear-cut moment but rather a range where capitulation has historically occurred.
However, it is critical to comprehend the data because it can offer some indication of how far we have come in this particular market slump and how much further we still have to go before things start to get better.
The pattern is different for bear markets. They instead range greatly in length and severity. The worst time to invest was during the Great Depression, when the US equity market plummeted 86% and took 25 years to recover. Thankfully, this was an exception, and bear markets in more recent periods have tended to be less severe and to recover much more quickly. Since 1945, bear markets have typically taken two years to recover their losses and roughly 13 months to reach their bottom point.
In conclusion
There is no predetermined limit on how long capitulation may last, and even in hindsight, various investors may hold different views on the precise beginning or finish of a given phase of capitulation.
The month-long episode of market collapse that preceded the start of the COVID-19 epidemic seems to have started around the beginning of 2020. As a result, the procedure took around 30 days in that example. But since every circumstance is unique (as we seen in capitulate definition above), single-stock panic selling may take place much sooner than a market-wide collapse.