August 5, 2021

Bitcoin Capitulation Plunge Results In Historic Realized Losses

3 min read

Sadly for them, paper hands people are breaking all type of records. Nobody expected a Bitcoin winter season this early, and current investors who lack conviction have been selling at a loss for a while now. Glassnode informs, “After breaking brand-new records on outright dollar denominated losses in May, the market capitulated yet once again this week, understanding a brand-new ATH of $3.45 B in losses.” Yikes! Who was anticipating this size of a capitulation in the middle of the cycle?

Associated Reading|Altcoins See Capitulation Against Bitcoin; Analysts Expect More Blood

According to Coinmarketcap‘s news:

Amid huge FUD, traders have actually been liquidating their supplies extremely quickly. The Bitcoin network realized revenue and loss has actually hit an all-time low based on on-chain data provider Santiment.

And later:

Considering that a low of brand-new investors has joined the Bitcoin network over the last couple of months, the cost volatility is something they are experiencing for the first time.

Brand-new investors are certainly losing their minds, but, is that all that is taking place?

Capitulation, record realized losses

 Bitcoin Realized Losses hit an all-time low|Source: Glassnode Tax-Loss Harvesting On Steroids Given that these brand-new financiers are really selling at a loss, they can legally deduct those losses from the capital gains amount they owe taxes on. This unlocks for tax-loss harvesting, a common practice that Investopedia discusses

as: As a strategy, tax-loss harvesting involves offering an investment that has declined, replacing it with a reasonably comparable investment, and after that using the investment sold at a loss to offset any realized gains.

Nevertheless, given that in cryptocurrencies "so-called wash sale guidelines don't use, according to financial advisors," you do not require to discover a "fairly comparable investment." You can just re-buy the same cryptocurrency, as CNBC discusses:

This provides two advantages to crypto investors: They can offer crypto for a loss, and after that use that loss to lower or eliminate capital gains tax on winning investments. Then, they can rapidly buy back the crypto they sold so as not to lose out on a subsequent rebound in cost.

Could this loophole have something to do with the phenomenon this short article research studies?

 BTC price chart on Bitbay |

. Source: BTC/USD on TradingView.com Are Institutions Benefiting From Capitulation?

This other explanation will not amaze anybody. Perhaps institutional investment is buying while panicking paper hand individuals are offering. Our sibling website NewsBTC currently quoted this tweet from Mark Yusko, Morgan Creek Capital Management's CEO:

Then, NewsBTC concluded:

Bitcoin will recover with institutional money nabbing every coin from frightened retail investor's hands. In fact, the procedure is probably already taking place.

Nevertheless, Glassnode's analysis reflects another thing completely. To prove their case for the current absence of institutional interest, they point out the low numbers of Grayscale's GBTC trust fund and the Canadian ETFs. That, plus:

... on the institutional front, we can observe the net modification in the coin balance hung on Coinbase, a favored venue for United States organizations throughout the booming market. After a continual period of net outflows given that Dec 2020, the modification in Coinbase balance has actually flattened out significantly.

Related Reading|Bitcoin Has Been in a Bull Run Since 2019-- and There's More to Come: Analyst

Capitulations are notoriously hard to recognize while you're in the middle of them. After the reality, on the other hand, they're exceptionally simple to spot. Shall we wait and see? Or are we sure that capitulation occurred and the bottom is in?

Included Image by Brett Jordan on Unsplash - Charts by Glassnote and TradingView