Reasons for a Crypto Crash Examined

Sometimes a crypto crash wipes out wealth so severely.

Despite the well-known volatility of cryptocurrencies, investors do not seem deterred. Crypto can have big days when values soar. And there can be big days where prices go the wrong way.

When values plummet, it's hard to be prepared. A crypto crash is uncertain; nobody knows the exact time when it will happen. But what causes a crypto crash?

Cryptocurrency Security

Network security is a factor that could spark a crypto crash. Security flaws in any blockchain can cause concern among the public and regulators, impacting on the value of coins and tokens on that network. The value of crypto is driven by investors' interests; fear, uncertainty, and doubt can lead to a crypto crash.

Volatility in the Cryptocurrency Market

When investors liquidate high volumes of a digital asset, crypto markets witness volatility. While this can hurt some investors, there are others watching for, or perhaps contributing to, such a situation. Others drive up prices and over-inflate the value of certain coins and tokens, again contributing to volatility. Both have contributed to crypto crash scenarios, when prices are deliberately forced down or plummet when the hype dies.

Cryptocurrency Regulation

China banned crypto mining in 2021. This move, positioned as regulation, saw cryptocurrency values decline as the hash rate slowed. This is a single example, but demonstrates how regulation can contribute to a crypto crash.

Crypto Influencers

This is an extension of the volatility explanation, but is specifically referencing those who use their platforms to shift prices, deliberately or not.

For example, when Elon Musk tweeted his support for Dogecoin, the value soared. When he criticised other cryptocurrencies, their values fell.

The Stock Market

Although seen as distinct, there is a correlation between activity on old-fashioned stock markets and the new crypto exchanges. There is so much that can impact a market value, this is inevitable. If taxes go up in a country, or financial regulation is tightened, or inflation and cost of living explode, both types of market will be impacted similarly.