Tag: crypto

Bitcoin on the Brink: What Could Trigger a Capitulation?

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Bitcoin has been on a roller coaster ride over the past few weeks, with prices swinging wildly from highs of around $80k by June 2021 to lows below $15k in the past few weeks. This volatility is nothing new for Bitcoin, but it seems to ramp up as we approach what could be a critical juncture for the digital currency.

So, what exactly is a capitulation? The Cooperate Finance Institute has a concise definition.


In the financial world, it generally refers to a situation where investors give
up on an asset and sell it en masse, leading to a sharp decline in prices. This can often be seen as a final stage before prices bottom out and begin to rebound.

In the case of Bitcoin, a capitulation could be triggered by several factors, including the following:

When miners receive rewards in Bitcoin for verifying transactions, they are motivated to keep the network secure. However, if the price of Bitcoin falls below the cost of mining (i.e., electricity and other expenses), miners will be operating at a loss. As a result, they will be less likely to continue verifying transactions, and the Bitcoin network will become less secure. This is known as a miner capitulation. 

In a severe case, it can lead to a Bitcoin death spiral, in which the price of Bitcoin falls so low that no miners are willing to continue verifying transactions. This would make Bitcoin unusable as a currency, as there would be no way to verify transactions. Therefore, it is important for the price of Bitcoin to remain high enough to incentivize miners to keep the network secure.

Brain Drain

When people are anxious about the future, they tend to sell their assets and move their money into assets they see as safer. In the case of Bitcoin, when people become anxious about its future, they sell their Bitcoins and move their money into assets like the US dollar. 

This mass exodus of money from Bitcoin to other assets causes the price of Bitcoin to drop, which leads to even more people selling their Bitcoins, causing a downward spiral.

Closed/Overprotective Community

There have been a few times in Bitcoin’s history when the community has become too closed off and overprotective, leading to a capitulation. One such example was when Introducing NFTs to Bitcoin forums and discussion groups led to a massive flame war that ended in many members leaving the community. Another example was when the Bitcoin Lightning Network was first proposed, there was a lot of infighting, and eventually, some members left to start their own projects. While it’s understandable that people want to protect their investments, Ultimately, these capitulations happen because the community becomes too insular and fails to listen to new ideas. To avoid this in the future, it’s important for the community to remain open-minded and willing to discuss new proposals. 

Increased Regulation from Governments 

When a government begins to tighten its regulation of a particular industry – in this case, Bitcoin – it can significantly impact the market. In the case of Bitcoin, when it was announced that the governments of South Korea and China were planning to introduce new regulations around cryptocurrency, the price began to drop significantly. 

This is because investors felt that the increased regulation would make it more difficult to trade or use Bitcoin, so they began selling off their holdings. As more investors sold off their holdings, the price continued to drop until it reached a point where many people decided to sell their coins at a loss. This caused an overall panic in the market and led to a massive capitulation event.

Bitcoin Verdict

The jury is still out on whether or not Bitcoin will survive in the long term. However, it is clear that several factors could trigger a capitulation event.

If the price of Bitcoin falls too low, miners will be incentivized to leave the network, which could lead to a death spiral. Additionally, if investors start to panic, they may sell their holdings en masse, which could also lead to a capitulation.

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Tokenizing Debt: Flipping Debt into IOU tokens

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A recent article stated there were ongoing rumors that Celsius wanted to convert its debt into IOU tokens.  According to leaked audio, Celsius executives were mulling converting their debt into an IOU cryptocurrency and giving it out to their debtors as settlement. This token will be given as a ratio of what the firm owes its clients and what it currently has on its balance sheet- the notion being that if the debtors could hold on to these tokens for long, then they will ultimately increase in price and generate gains for their holders. The company recently filed for Chapter 11 Bankruptcy and they are in the process of restructuring and finding the best way to clear their debt.

What are IOU Tokens

IOU is an acronym and stands for I Owe You. It is a contract that is signed by two parties indicating that they acknowledge that debt is owed by one party to the other. These contracts can be digitized and brought into the blockchain and then converted into tradeable tokens. Value of the tokens is expected to be governed by market perception of the party offering the tokens. In the event that the company can prove that it is sustainable and has multiple income streams, then the market may be bullish about it therefore boosting the value of the token. These kinds of tokens can only be employed by companies that have fallen into debt and consider their current income streams insufficient to cater for the underlying debt while at the same time sustain day to day operations. Depending on the contract, the token can be bought back by the company at an agreed timeframe or simply traded at the secondary market.

IOU tokens are ingenious ways in which Blockchain companies are spinning their debt obligations into “ temporary assets” and trading them on secondary markets. Celsius is not the only company that has leveraged this new debt model. Recently, a Chinese Mining company, Poolin, suspended withdrawals on its site and thereafter issued IOU tokens to its users. Users were given these IOU tokens at a  ratio of 1:1 of their holdings on the platform. The users have the option of selling these tokens on third party websites, reselling back on the platform or even purchase products  from the company.

Recent goings on in the industry show that IOU tokens seem to act as a viable last resort for companies facing liquidity challenges. Wide adoption of these tokens may encourage brick and mortar companies that have solid assets but are facing temporary  liquidity challenges to consider floating IOU tokens. This will deepen Defi, enhance liquidity in the ecosystem and  help develop new and advanced products for this industry.

5 Tips for Surviving a Bear Market

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The crypto market is fully in bear territory now, even though we have seen some relief over the past few days, with Bitcoin and Ethereum rising again, and a number of DeFi project tokens seeing double-digit percentage rise. For many of us in crypto, this is not the first time we’ve been in this position. We know that the market is cyclical, and that this time round macroeconomic influences are more influential, especially with a recession looming.

So, if you’re a crypto holder, what should you do? Should you sell or buy the dip? Or take some other action? Here is some advice from market watchers.

1. Take some profit

HODLing is widespread in the crypto community, but Tyler Reynolds, a Web3 investor advises selling a percentage of your gains at this time, rather than just sitting on your investment, or selling it all. An anonymous trader also said, “Set sell targets/take profit levels in advance, at least loosely, and stick to them. Your objective self from the past is a better guide than your euphoric self in the future.”

2. Do not panic sell

Its better to take some profit, or devise a strategy for exiting the market completely, but don’t panic sell says Fedor Linnik, an NFT builder. He added, “being greedy and being afraid to miss the top” was a mistake he made in 2018. Make your selling decisions based on data, not on emotion or on advice from social media.

3. Don’t try to ‘make it back’

Alex Svanevik, CEO of data analytics firm Nansen, said that those who invested in 2020 and benefited from the highs of 2021, need to realise the fun is over for now. He warns against entering highly risky trades to try and make back losses.  A trader tweeted, “Don’t trade or invest with the mindset of ‘making back’ what you lost in the bull; it’s an inherently flawed comparison.”

4. Research projects

Use this bear market time to look at crypto projects, new or old. Tyler Reynolds said that what worked for him during the last bear market was to keep investigating both new and old projects. “You will need to keep re-investigating as projects pivot from their original idea and find a much better product-market fit, like Aave.”

5. Get involved with crypto projects

Many crypto projects, especially those in DeFi, are structured as decentralized autonomous organizations, or DAOs. Anyone can join and participate, and if you are a developer looking for a job in crypto, it can be a good way of finding one.

Reclaiming blockchain technology

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For as long as blockchain technology has existed it has played a ‘Cinderella’ role in the cryptocurrency story, the latter being the headline grabber. Any have overlooked the potential of blockchian as an advanced and evolving technology that could have many more uses.

Let’s start with the basics: blockchain is a a distributed database whose information is stored across every node running the network, and because of the distributed factor, it guarantees data stored within it is accurate and securely stored.

With cryptocurrencies, the blockchain guaranteed trust. For example with Bitcoin, one can accurately verify that funds aren’t spent twice, that its supply is limited, and one can see the history of transactions on the network.

Blockchain and supply chains

But as a distributed ledger, blockchain has many more use cases.

Francisco Rodrigues gives the example of IBM partnering with the Abu Dhabi National Oil Company to pilot a blockchain supply system for oil and gas production, while De Beers already uses blockchain to track diamonds on its supply chain.

It is already in use by government agencies and bigger businesses, as Johnny Lyu, CEO of KuCoin points out, saying that the use of blockchain is “commonplace among government agencies and businesses,” and giving the example of the Global Shipping Business Network (GSBN), a consortium that counts on the participation of major institutions including the Bank of China, DBS Bank and HSBC.

Blockchain answers consumer demands

Blockchain has many advantages for some industries, especially food and beverages where consumers demand transparency. Today the average consumer today no longer just cares about what they eat and how it should be cooked, but also considers where ingredients are sourced and how they’re handled. So, blockchain has a big role to play in logistics.

Sankar Krishnan, executive vice-president at Capgemini Financial Services, points out that blockchain technology is also “very ESG friendly,” referring to the environmental, social and governance standards which investors now pay more attention to.

Less room for errors with blockchain

Blockchain use also reduces the amount of data that has to be tracked. Without it every party involved either prints out information or exchanges it via email multiple times; a costly process with the potential for mistakes being made. These issues would be eliminated if transactions were processed on a blockchain.

So, if blockchain has many more use cases than crypto, why is it not more widely used? The brief answer is implementing enterprise-level software technology requires a significant investment. There may also be some stakeholders who are resistant to transparency. Adoption may be only slowly evolving, but its potential to revolutionize how some industries work cannot be ignored. Perhaps one day people will be saying that Satoshi Nakamoto’s best invention was the blockchain, not Bitcoin.