Cryptocurrency Crash - Is It Inevitable?

Since 2022 started, we have seen signs of a possible cryptocurrency market crash.

The crypto market is highly unpredictable. Bitcoin and other prominent cryptocurrencies, including Ethereum, BNB, Luna, XRP, Solana, Cardano, Avalanche, and Dogecoin, have experienced falls in value, brushing around $200 billion from the aggregate crypto market.

Five months back, Bitcoin (BTC), the largest cryptocurrency with a market value of $758 billion, reached its all-time high of $69,000, and its market is currently 42% down.

The question remains the same: is a cryptocurrency crash inevitable?

To understand the question, we need to study the reasons behind the market crash. Let's go through some of the prominent reasons behind a cryptocurrency market crash.

1. A Dearth of Liquidity in Cryptocurrency Markets The most notable concern the crypto markets encounter is when leveraged investors liquidate a considerable share of their investments due to the across-the-board liquidity of the markets. Unlike the stock market, there aren't consistently a bunch of buyers waiting to grab up unloaded coins. This is a reason why crashes tend to occur more frequently.

2. Crypto Security Violations are Driving Fear Blockchain and network security are additional factors resulting in a crypto crash. This crash is likely to unfold similar to government actors' regulatory disruptions.

For instance, if it seemed that there was a security fault in Bitcoin, that would impact the desire to mine it, affecting the hash rate and all-around price.

And unlike stocks, which are backed by underlying assets, the value of most cryptocurrencies is operated purely by investor view. Morningstar Investment Management global chief investment officer Dan Kemp said the challenge facing holders is finding cryptocurrencies with 'limited supply and enduring appeal’.

3. Uncertainty Uncertainty among investors is driven by many factors, for example Covid-19 and the ongoing war in Ukraine. They aren't sure whether the cryptocurrency market is stable or volatile. Lack of liquidity in the market generates fear among investors. They are likely to liquidate their assets as per the unpredictable situation. This results in an overflow of coins with a limited amount of buyers present in the market, driving a market crash. This again counts as one of the prominent reasons behind the crash.

4. Crypto Influencers are Driving Volatility When it comes to sentiment, cryptocurrency investors ought to remember that crypto promoters and key influencers can tweet and generate an inflow of capital. We've seen this occur with Elon Musk's backing of Dogecoin.

Tweeting can have an adverse effect too. The reason behind this is the investor sentiment and crypto's shortage of liquidity. The only solution to the problem is to study the market trend and analyze the technical team and their robust strategy to boost the coin performance.

Answering the central question, no, the cryptocurrency market crash is not inevitable. With the influx of serious investments from institutional investors and advancements in crypto projects, we expect the blockchain industry will mature with time and earn trust from investors as WEB3.0 stands at the door. These crypto projects directly link to real-world applications, and when they go to the profitability section, we could expect the market would get more mature.

The volatility could reduce to a certain level in the interest of the investors