Reasons Behind Crypto Market Crash

Crypto, Blockchain, DApps, Cryptonomics millennials, and Generation Z has seen everything, from the rise of the crypto market & Bitcoin to its crash. Crashing Net worth from Billions to Zero, Covid-19, Years of Lock down a potential third world war and what not.

 

But, what struck me most is the Crypto market crash, The one thing which was considered to be decentralized, not controlled by any government/ Group or anything crashing to land. And, How did this happen? Does this seem to be the mystery like who is Satoshi Nakamoto? No, No wait, it is not that mysterious. Connect a few dots and there you go. You have everything you need to know about Crypto crashes.

 

What is Crypto And Crypto Market?

 

In simple terms Crypto is the money, that is not physically present (that is you cannot touch it, tear it like a dollar bill, or do anything that can be done with a normal bill like USD, or INR). Its presence resides only in servers and the value lies there only.

 

Whereas Crypto Markets, are the exchanges where people can buy, trade, and sell the cryptocurrency for actual fiat money or any other cryptocurrency.

 

Terms Related to Cryptocurrencies –

 

So, this section is not important if you already know pretty well about cryptocurrencies but, if you don’t then this is a pre-requisites for you.

 

Fiat – Fiat money is the money that is backed by the government. Example – USD (Backed by US Gov.), INR (backed by Indian Gov.).

 

BTC/ETH – These are acronyms for the cryptocurrencies, Just like we have USD for United States Dollar, INR for Indian Rupee.

 

Swap – Swap is the term used when you are changing from one crypto to another crypto. Note we don’t use the term swap when changing from Crypto to Fiat.

 

Trade – Trade is the term used when you do any kind of transaction on the platform.

 

Exchange – This is the term used when changing from Cryptocurrency to Fiat.

 

Peer-to-Peer – This means buying/Selling without the intervention of the platform/Exchange on which the trade is taking place.

 

Futures – Used to trade on the market if it going to go up/down.

 

These are enough For your reference and now, let us move to the main section, the Reason behind the crash.

 

Reasons behind the crash of the crypto market –

 

1. Regulations – As we already know that Indian government proposed a bill citing the risks of cryptocurrencies and introduced a 30% tax on cryptocurrencies as well as another 1% TDS for intra-traders. This became quite expensive for investors. Even if they lose their half money in the crypto crash they would still be obligated to pay 30% tax. This resulted in many Indian investors backing out and selling their long-term holdings. When they exited the market, not only they sell their holdings, but also destabilized the market.

 

2. Low Liquidity – This is another reason for the crypto market crash. This happens when the holder liquidates a large portion of assets resulting in a change in the overall liquidity of the coin. In the case of a new coin, if the early adopters sell their holdings, it may be possible that the unheld coins may not be bought again, due to less popularity and strength.

 

3. Security – When crypto exchanges get hacked, they lose a large share of their holdings to hackers who not only swap the coins but just to prove their point sometimes burns the coin or sell it to lower the price of the coins.

 

4. No underlying Assets – This can be one of the biggest reasons for a crash, as there is nothing other than a loyal community and some fearless investors that are keeping the price up and moving. Whereas in the case of something new which does not have an underlying asset. For example, if USDT had a 1$ pegging which is not backed by actual physical 1 US$, then we could have seen another crash where USDT would have been available for just a couple of cents.

 

5. Terra-Luna Crash – As the Terra blockchain-based coin crashed by over 99.99% this created a panic and haste in people. Thinking of investing in such coins is a good choice or not? The crash not only reduced the market cap but also affected altcoins resulting in around a 3-8% downfall. While at the same time the coins backing up Terra which was supposed to be 1$, crashed to 0.02$.

 

6. Rich People Crating Panic – Rich and influential people I don’t want to take names but you know who am I talking about, creating hype based on their thinking. If they think ABC coin should skyrocket just because they have it, they promote it. And when it reaches the heights, they sell their coins and dump the price. And it's vice versa.

 

Conclusion –

I know that you are smart enough to take decisions but make sure when you do that, you do a background check on the potential of the project, and you have correctly understood the roadmap & plan of the project that you are going to invest in. This is because if you know the potential you will stick to it and you would know when to exit and when to enter the project. Unlike others who enter and exit according to whatever people day creating a panic situation resulting in high selling which leads to a decrease in value of the coin/ project.