Four Times When Bitcoin Capitulation Has Meant Bull Run

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  • Bitcoin’s price action this week has got many screaming ‘capitulation!’
  • No one knows if it actually is capitulation or there’s more to come
  • Bitcoin’s history is littered with occasions when capitulations have led directly to bull runs

Bitcoin’s price action over the last couple of days has led to many screaming ‘capitulation’, but this could potentially just be wishful thinking. While capitulation events themselves aren’t enjoyable (unless you’re on the sidelines), history has shown that teaming the word ‘Bitcoin’ with the word ‘capitulation’ has led to very bountiful times indeed. In this piece we look at three times when what seemed like the end of the world was in fact the springboard to an almost inconceivable new paradigm for Bitcoin.

August 17-19, 2012

Technically Bitcoin was already in the early stages of a bull market in 2012, having risen from $5 to $16 in just three months. However, a seismic three-day collapse saw it lose 57% of its value, wicking down to $7.07:

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This collapse was attributed to the collapse of one of Bitcoin’s early scams, Bitcoin Savings and Trust, which turned out to be a pyramid scheme that ended up taking some 700,000 bitcoin from investors. There were already jitters about it in July of 2012, but on August 17th, Trendon Shavers, the man behind the scheme, announced he was closing it, as the scam was confirmed.

Bitcoin recovered over the following months before going on an absolute tear, with the Agust capitulation retrospectively acting as the starter pistol for the two rallies that followed, first to $260 and then $1,164 the following November.

October 2, 2013

In between Bitcoin’s two highs in 2013 came not one but two events that could be considered capitulation events. The first was in April 2013 when a now typical post-blow off collapse led to Mt. Gox, the biggest exchange at the time, being unable to cope, with hackers taking advantage as it pulled its services. This caused the price to crash from $260 to $50, but seeing as this event didn’t itself spark a bull run (quite the opposite, in fact) we can’t include it here.

What we most certainly can include however is October 2, 2013, when Bitcoin crashed 33% on the news that illicit drugs marketplace Silk Road had been infiltrated by the FBI and its founder, Ross Ulbricht, arrested.

Many thought that Silk Road’s closure would be the end of Bitcoin because that was its only use case. This was not only inaccurate but spectacularly inaccurate – price recovered in just 10 days, and the capitulation event led directly into a 10x move that finished off the 2012/13 bull run in fine style:

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January 14, 2015

Bitcoin had been in a brutal bear market since the 2013 bull run had topped out that December, already losing 77% of its value going into 2014, and things looked to be at their absolute worst when it dropped 43% in the space of 48 hours:

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As usual, narratives were sought for the drop, with explanations ranging from delayed reaction to a hack on Bitstamp that had taken place the week before to, in the words of Roger Ver, “anticipation of the Feds selling 100K more bitcoins in light of the #SilkRoadTrial news.” Russia banning crypto websites and miners needing to pay back loans were also named as the catalyst as the media searched for answers.

Whatever the reason for the capitulation, far from being the final nail in Bitcoin’s coffin as some predicted, it instead acted as the springboard for what would turn out to be its most incredible rally yet, with Bitcon’s price not stopping until it hit $20,000 nearly two years later.

March 12-13, 2020

Still fresh in the memory for many is the coronavirus-inspired and leverage trading-perpetuated collapse that saw Bitcoin crash from $7,958 to $3,850, a 50% correction that would have been worse had BitMEX not turned off its machines (strange world, huh?):

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As we now know, what at the time was a 50% drawdown would turn into a 1,700% win for those who held on for the following year or so, with cheap money flooding the market and allowing 2020 entrants a chance to make hay while the world wilted.

Not Every Capitulation Means Bull Run

Of course, not all capitulations lead to bull markets, with timing being key. A capitulation that takes place at the end of a bull run is most likely the start of a bear market, with prices potentially going even lower. However, capitulation at the end of a bear market or a lengthy period of stagnation is often the final shakeout before the fun begins again.

Naturally we can only usually see in hindsight whether a capitulation is a springboard to a bull market, but it pays to assess the overall crypto ecosystem at the time of the collapse to see if the time is right for a new bull run or not.