• Bitcoin and Ethereum have seen a rally, which has lessened the severity of capitulation.
• Net Unrealized Profit/Loss (NUPL) is the difference between Relative Unrealized Profit and Relative Unrealized Loss which can be calculated by subtracting realized cap from the market cap and dividing the result by the market cap.
• Bear market bottoms occur when capitulation occurs, even when the strongest hands sell due to fear in the market and each bear market bottom has made a higher low, which shows the capitulation amongst holders becomes less severe.
As the price of Bitcoin and Ethereum continues to rise, the severity of capitulation amongst holders has lessened. Capitulation is a term used to describe a situation in which the strongest hands in the market sell due to fear and despair, and usually marks the bottom of a bear market. In 2021, multiple events, such as the Ukraine invasion, Luna, and FTX collapse, saw multiple capitulations amongst holders. However, when Bitcoin broke the $20,000 milestone in late 2021, the sentiment in the market suddenly shifted away from capitulation.
Net Unrealized Profit/Loss (NUPL) is a metric used to measure capitulation severity, and is calculated by subtracting realized cap from the market cap and dividing the result by the market cap. When NUPL is low, it indicates that holders are more likely to capitulate, and when NUPL is high, it indicates that holders are less likely to capitulate. As seen in the charts provided by Glassnode, when Bitcoin and Ethereum breached their respective all-time highs, NUPL was relatively low, indicating that holders were still fearful of capitulating. However, as the prices of both Bitcoin and Ethereum have continued to rally, the NUPL of both cryptocurrencies have risen, indicating that holders are less likely to capitulate.
In addition, the bear market bottoms over the past few cycles have made higher lows, which further indicates that capitulation amongst holders is becoming less severe. This is further evidence that despite the fear caused by events such as the Ukraine invasion, Luna, and FTX collapse, the sentiment in the market is slowly shifting away from capitulation and towards a more optimistic outlook.
It is important to note that while the severity of capitulation is decreasing, it is still an important factor to consider when making investing decisions. Although capitulation is becoming less severe, it is still possible for it to occur at any moment, and investors should remain aware of this possibility and adjust their strategies accordingly.