Capitulation

Capitulation refers to a period of strong selling activity, where investors give up their positions and sell their holdings as quickly as possible. It is often referred to as panic selling because during a period of capitulation, sell orders peak at a much higher-than-average level, which quickly drives the asset price lower and lower until a bottom is eventually reached.

The reason why capitulation periods often lead to price reversal and strong upward trends is that these episodes are usually marked by FUD and panic, so the selling pressure goes beyond normal levels, reaching oversold conditions. The more violent and abrupt the price drop is, the higher is the chance that it will be followed by a strong bounce.

When the market presents an abnormally high volume of sell orders in a short period and a rapid price decline, it may indicate that capitulation is taking place. Although not always easy to predict, when capitulation occurs, it is quickly recognized as it places extreme downward pressure on market prices - with sharp and quick movements.

A sustained bear market through 2014 led to a period of severe FUD at the beginning of 2015. Investors began to panic-sell their holdings, fearful of incurring even greater losses. The capitulation occurred on January 15th, 2015 - when a massive spike in sell orders over a short period resulted in Bitcoin’s price dropping about 38% in 2 days.