How do you distinguish between a dip and a crash here?
Last week's difficulty drop was only -0.74%. Prior to that, difficulty actually rose by +1.99%. That doesn't seem indicative of "capitulation" to me. We need an actual crash like Q4 last year for miners to start shutting down en masse.
I think you may be confusing the start of the capitulation with the end of the capitulation cycle. Minder shut off en masse usually at the end of the such a cycle.
You're removing all meaning from the word "capitulation" and making it interchangeable with "bear market." There is no such thing as a capitulation
cycle. It refers to a specific part of a bearish market cycle, where massive losses on high volumes are observed.
Miners capitulating at the end of a bear market
is exactly what would be expected:After capitulation selling, many traders think there are bargain buying opportunities. The belief is that everyone who wants to sell a stock for any reason, including forced selling due to margin calls, has already sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that capitulation is the sign of a bottom.
While traders often attempt to anticipate capitulation selling or buying, the reality is that capitulations are after-the-fact outcomes that result from the maximum psychological and financial pain that can be endured by investors before liquidating their positions.
However, a 0.74% drop in difficulty does not indicate capitulation. Maybe it indicates
something but I would find a different name for it.
Regarding the indicator, it is by default based on the 30 and 60 SMA's of hash rate. Therefore, as far as I understand with the coding:
- When the 30 initially crosses below the 60 (bearish) that creates the red area whereby the indicator signals the beginning miner capitulation (shown by the title "capitulation").
- When the 30 is rising back towards the 60, we see the red area shrink (as shown with the green dots), as capitulation is losing momentum.
- When the 30 is again trending downwards away from the 60 (that it previously crossed), we then see the transparent dots signalling continued "miner capitulation".
- When the 30 crosses back above the 60, indicating an exhaustion of miner capitulation, we then receive the "Buy Signal" (as shown above in blue)
That's like calling a bearish cross a "capitulation." A bearish cross will always precede capitulation, but capitulation does not always follow from a bearish cross.
Hash rate follows price (though it doesn't correlate perfectly) so watching miners instead of price just seems to further blur the issue.