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A crypto market crash is never a good sign. However, these market crashes are not rare either. They happen every day in different parts of the world.
But what is the reason behind a crypto market crash? What causes it? And how can it affect you?
Below are some of the most important reasons why the crypto market crashes and how you can predict the length of these crashes when they occur.
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Why Does the Crypto Market Crash?
The crypto market crash is when the price of a cryptocurrency falls drastically in a short period of time. This can happen because of various factors such as regulation, new technology, poor market makers, or even a hack.
The crypto market is always in flux, and the prices of cryptocurrencies are constantly changing. However, there are times when the market goes through a crash, and the value of cryptocurrencies drops drastically.
An Unexpected Event Can Trigger a Market Crash
Each unexpected event such as hacking or theft can cause a sudden drop in the price of a cryptocurrency. For example, if a cryptocurrency exchange gets hacked or hackers steal its data, investors may lose trust in it and sell its coins at lower prices. This can result in a sudden drop in the value of that currency against other currencies or USDT.
Technical Issues Cause Problems
Another reason behind a crypto market crash is technical issues such as bugs or software problems. These can lead to security breaches including theft or hacking.
These issues can also result in loss of funds and investors getting scammed out of their money. They might also have difficulty accessing their accounts due to downtime caused by these technical issues with exchanges. This results in panic selling. People dump their coins at lower prices to get them off an exchange where they cannot access their funds anymore.
Another factor that can add to the effect of a crash is traders getting liquidated on crypto margin trading exchanges due to market markers failing at supporting prices.
When traders and investors leverage their portfolios and the market comes crashing down, it creates a ripple effect that liquidates hundreds or even thousands of traders at the same time, especially those who are not equipped with a stop loss crypto exchange.
This happens over and over again in the crypto space and is becoming a big problem. To prevent this you should always consider using less leverage and keep your stop-loss order in place.
Lack of Regulations Lead to Frequent Crashes
The lack of regulations in the crypto world can be another one of the reasons why this market crashes so frequently.
The lack of regulations is due to several reasons. However, what this means is that there are no laws or rules for regulating these currencies and their use. This leads to increased volatility in the price of cryptocurrencies. Therefore, there are frequent crashes in this market.
Fear, Uncertainty, and Doubt (FUD) Can Cause a Crypto Market Crash
Any fear, uncertainty, or doubt (FUD) among investors is another major reason behind the frequent crashes in this sector. This is because these emotions can generate panic among large numbers of investors. This can cause them to sell off their holdings at any cost to avoid losing more money on their investments. This also leads to increased volatility in prices and hence more frequent crashes in this sector.
Is a Market Crash Good for Crypto?
Surprisingly, yes, a crypto market crash could be good for crypto. The current crypto market crash happened because there were too many cryptocurrencies in the market and not enough resources to support them all. Therefore, the market became saturated.
The best way to correct this situation is through a crypto market crash. If many people lose money, then there will be less money available for buying new coins. This means that the value of each coin will increase as there will be less competition for a limited amount of resources.
Additionally, a market crash is a sign of instability in the financial system. In the case of cryptocurrencies, it’s still too early to say whether a crash will be good for these currencies. It all depends on what happens next.
The crypto market has been declining since its all-time high at the end of 2017. However, it’s important to understand that this is not the first time a cryptocurrency has crashed and recovered relatively quickly.
If you look at bitcoin’s history, for example, you’ll notice that there have been multiple times when it has lost almost 90% of its value. Fortunately, the crypto market has eventually recovered within months or years after each crash.
This means that as long as there are no major changes in regulations or major hacks such as the scandal that happened with Mt. Gox several years ago, cryptocurrencies are likely to recover from this latest market crash. However, they probably won’t recover as quickly as they did last year. That’s because investors will probably be more cautious about investing their money into something they don’t fully understand yet.
What Happens in a Crypto Bear Market?
The first thing that happens in a bear market is panic. People who bought high and are now in the red are sure they will lose everything. It’s natural to feel this way. After all, who wants to see their money go down the drain? However, operating out of fear is not a good investment strategy.
Panic leads people to sell at any price to recoup some losses, which further drives the price down. These panicky sales happen on both ends of the spectrum. First-time investors who bought at high prices sell because they think they’re going to lose everything. Second-time investors who bought low sell because they think they’ve made it big through their shrewdness—and don’t want to risk losing what they think is a sure thing.
The second thing that happens is a lack of confidence in the market itself—an unwillingness on behalf of people who are invested in crypto assets for the long haul to buy more at these depressed levels. A lack of buying pressure pushes prices further down as sellers pile on more supply at bargain prices.
An alternative to try out is a market maker who can provide liquidity on a defined cryptocurrency.
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How Long Does a Crypto Market Crash Last?
Cryptocurrencies are volatile. Therefore, it is hard to predict how long this current market crash will last. However, we can take some clues from examples of previous crypto market crashes.
For example, in January 2018, bitcoin crashed from $19,500 to $6,000 within one month. Then it recovered and started growing again until May 2019, when it reached a high of $13,800 per coin.
In July 2018, Ethereum crashed from $1,400 to $200 within one month. Then it recovered and started growing again until March 2019, when it reached a high of $1,390 per coin.
Only time will tell how the current crypto market will recover and to what extent it will do so.
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