Hold Tight – This Isn’t the Capitulation You’re Looking For

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  • Crypto is capitulating, but history tells us this isn’t the dip to be buying
  • A protracted bear market often sees progressively lower numbers
  • The final capitulation several months into the market is the one to be buying

There is no doubt that what the crypto market has been experiencing over the last few days is capitulation, leaving many fearful of more to come. Predictions of $20,000 Bitcoin have come true, which has led, inevitably, to calls for $17,00, $12,000 and even $9,000. The mantra of buying fear is drilled into us every day while we’re in crypto kindergarten, but while we are not qualified to say what will happen to the crypto markets in conditions not seen for four decades, if history is our guide it’s clear that this isn’t the capitulation you should be buying up because worse is to come.

Patience Pays When it Comes to Buying Capitulation

Crypto capitulations are a common occurrence, and anyone who has ridden this particular rodeo before will be feeling almost nothing at watching prices plummeted. Those on the sidelines will of course be licking their lips at the sight of rapidly falling prices, but you should stay your temptation to buy because there’s a good chance that this isn’t the capitulation.

This week we covered the fact that, in bear markets, bottoms take a long time to form, so rushing into the biggest capitulation on the back of a parabolic rise often isn’t the wisest idea. We can see this from the 2018 bear market, where buying the bottom of the first flush would have garnered you an impressive quickfire return if you knew where to sell, but otherwise you would have been very much down by the final capitulation in November:

capitulation 1

In terms of this bear market, the November 2018 capitulation was the one to buy, but there have been several occasions when a late capitulation presented the best buying opportunity, something we outlined in another piece last month. We can see this presented on the famous Wall St Cheat Sheet:

wall st

This echoes the last bear market surprisingly well, and shows that it’s often best to wait until a few months into a bear market (for traditional assets this can be years) to buy the final capitulation intended to flush out any last lingerers before the new bull market begins.

When that happens, make sure you’re a holder or a buyer, not a seller.