Crypto crashing isn’t a new thing for traders and investors, right? You need to be prepared for cryptocurrency crashes because the history of digital currencies is punctuated by volatile price fluctuations, which lead to significant financial losses. Notably, there have been several major crypto crashes since Bitcoin’s inception, including downturns in 2011, 2013-15, 2017-18. In fact, the most recent crypto crash occurred between 2021 and 2024.
If you are an investor then you’d know that these crashes have collectively wiped out billions of dollars in market value, all while emphasizing the high-risk nature of investing in cryptocurrencies.
Let’s discuss why crypto is crashing to gain valuable insights that can help investors manage risks better and potentially safeguard their investments against sudden market downturns.
| Year(s) | Event | Key Details |
| 2011 | Booms and Crashes | Bitcoin rose to $1.06 in February, fell to $0.67 in April, spiked to $29.58 in June after a Gawker article on Silk Road, then dropped to $2.14 in November. |
| 2013-2015 | Boom and Crash | Bitcoin’s price reached $1,127.45 in November 2013, then gradually declined to $172.15 by January 2015. |
| 2017-2018 | Boom and Crash | Bitcoin saw an unprecedented boom in 2017, reaching about $19,783.06 in December 2017. It then fell by about 65% from January to February 2018, leading to a market-wide crash. By November 2018, Bitcoin had fallen 80% from its peak. |
| 2020-2021 | Bubbles | Bitcoin’s price fell by 30% in March 2020 but recovered to around $13,200 by October. It surpassed previous all-time highs in November 2020 and continued to set records into 2021, reaching over $66,974. The market experienced significant volatility, with major losses in May 2021. |
| 2021-2024 | Crash | After peaking, the crypto market began to fall significantly. By the end of 2021, Bitcoin and Ethereum had fallen nearly 30% and 23% from their peaks, respectively. The market experienced continued downturns into 2024, highlighted by several significant events like the collapse of Terra-Luna and the bankruptcy of FTX. |
What is Cryptocurrency Crash?
The cryptocurrency crash refers to “a significant yet rapid decline in the value of cryptocurrencies across the market”. Unfortunately, the crypto crash results in significant financial losses for investors. All while impacting the crypto market and blockchain technology sector as a whole.
Let’s consider a real-time example of a Bitcoin crash from 2021 to understand it with more clarity.
In April 2021, Bitcoin reached an all-time high of nearly $65,000. However, the crypto market’s enthusiasm was short-lived. Bitcoin’s price plummeted to around $30,000 in May 2021. This caused a dramatic 50% decline from its peak.
Ethereum, Binance Coin, altcoins, and other major cryptocurrencies also experienced significant losses after that. In fact, hundreds of billions of dollars in market value were wiped out in a matter of days. This crypto crash is indeed a stark reminder of the volatile and unpredictable nature of the cryptocurrency market.
Regulatory changes, security breaches, market manipulation, shifts in investor sentiment, or broader economic factors can lead to a cryptocurrency crash. Now let’s move ahead to discuss why crypto is crashing in more detail.
Why is Crypto Crashing?
Crypto crashes are dramatic drops in market value that unfortunately can occur over a short period of time, right? Well, it is essential to understand why these crashes occur, so that you can navigate the volatile cryptocurrency market without any major losses.
Here are possible reasons why is crypto crashing:
Regulatory News and Changes
We often get to hear new regulatory announcements or speculations about the crypto market. Unfortunately, it has a profound impact and it can lead to both crypto crashes and surges. For instance, China’s 2021 ban on crypto mining caused a sharp market downturn.
Market Sentiment and Speculation
Interestingly, the cryptocurrency market is highly influenced by sentiment rather than logic. Believe it or not, news cycles and even social media hype can trigger FOMO (fear of missing out). This can, in turn, lead to rapid, unsustainable price increases or decreases. If the news is negative, it can shift the sentiment in a bad way, causing panic selling and consequently resulting in crypto crashing.
High Leverage Trading
Traders know that leverage amplifies both potential gains and losses. Basically, when the market moves against heavily leveraged traders, it can trigger forced liquidations. This results in price declines, which in turn, leads to crypto crashing.
Technological Issues and Security Breaches
Do you know what else can shatter investor confidence? It’s none other than hack, exploits, or major flaws in cryptocurrency projects. All this can cause sudden sell-offs. Take 2014 Mt. Gox hack for instance. It’s a quick reminder of the consequences of security lapses.
Macroeconomic Factors
If you think cryptocurrencies are isolated from global economic conditions, then you are wrong. It’s surely true that rising inflation, interest rate hikes, or even fears of recession often lead investors to shift away from riskier assets. Cryptocurrency trading is no exception.
Liquidity Crunch
There’s a variety of factors that can bring forth moments of panic in the crypto market. So, if there’s panic, then there’s a lack of buyers, right? This lack can result in plummeting prices. This can lead to crypto crashing during market downturns when a wide range investors simultaneously attempt to sell their holdings.
Influence of Major Holders
“Whales” who hold massive amounts of a cryptocurrency, can single handedly impact the prices in good or bad ways. Sounds too volatile, no? It is. Unfortunately, if a whale sells off a significant portion, it can trigger a crypto crash right away.
Interconnectedness of the Crypto Market
You probably know that Bitcoin and Ethereum heavily influence the broader crypto ecosystem. Their dominance means that sudden crashes in these major coins often spill over into widespread market losses. It’s worth noting that this interconnectedness stems from several factors, including investor sentiments, trading correlations, and institutional adoption.
Market Manipulation
Wash trading, pump and dump schemes, and other forms of manipulation are still out there to plague the cryptocurrency space. All this artificially inflates the prices and creates potential for severe crypto crashes. You probably remember the controversy surrounding Bitfinex and Tether in 2018. Market manipulation is exactly what impacted them badly.
Overvaluation and Corrections
It’s hilarious but true that periods of unsustainable hype can cause overvaluation of cryptocurrencies. When the bubble bursts, investors adjust their expectations. This causes the pricing to go down the hills.
What are Signs of Impending Crypto Crash?
Although we have already discussed why is crypto crashing, here’s a quick look at some of the possible signs of an impending crypto crash:
- Rapid and unsustainable price growth.
- Overinflated market valuations with no corresponding increase in utility or adoption.
- Regulatory crackdowns or interventions by governments.
- Massive sell-offs by large institutional investors or whales.
- Increased scrutiny or negative sentiment from mainstream media.
- Major security breaches or hacks affecting prominent platforms or cryptocurrencies.
- Lack of innovation or technological advancements within the cryptocurrency ecosystem.
- Sharp declines in trading volumes and liquidity.
How to Survive a Cryptocurrency Crash?
The volatility of the cryptocurrency market isn’t hidden at all. In fact, the dramatic price fluctuations witnessed at the end of 2021 and the beginning of 2022 clearly illustrated what a crypto crash looks like. Just as this period of instability highlighted the complex interplay of factors influencing the crypto market, it also helped traders and investors grasp what it takes to survive a crypto crash. It requires a strategic and informed approach to navigate through the crypto market’s highs and lows effectively.
Here’s what you may do in order to be safe from a crypto crash:
- Maintain Composure – You should know that rapid market movements can provoke emotional decision-making. Therefore, stay calm and reassess your investment strategy, all while considering your long-term financial goals.
- Adopt a Long-term Perspective – Keep in mind that it can be beneficial to buy low and sell high. So, you may consider a long-term investment as it can alleviate the pressures of short-term fluctuations.
- Diversify and Research – It might be helpful to expand your trading portfolio during downturns as it may present better opportunities. Just make sure that you have conducted thorough research, all while using disposable income for crypto investments.
- Risk Hedging – You may apply hedging strategies to overcome a crypto crash. For instance, you can utilize contracts for difference (CFDs), to maintain your positions while offsetting potential losses.
Is the Crypto Crash a Buying Opportunity?
It depends. Apparently, a crypto crash might be a buying opportunity for investors and traders with long-term goals. But it’s essential to approach with caution. Potential investors are advised to conduct thorough research and consider the long-term potential of their investments. All while considering the rapid evolution and significant risks associated with the cryptocurrency market.
Basically, the recent turbulence in the cryptocurrency market has led to widespread speculation about whether the current downturn presents a strategic buying opportunity for investors or what. If we draw parallels with historical market cycles, such as the dot-com era, it can be argued that despite recent declines, the underlying technological innovation and potential for widespread adoption may signal significant long-term growth for cryptocurrencies.
According to EL PAÍS, the collapse of several high-profile crypto firms is viewed within the industry as a process of “creative destruction”. This may ultimately purify the ecosystem, all while leaving only the most robust companies standing. For sure, this perspective suggests that the market could be on the cusp of a bull run, potentially more impactful than previous ones.
In fact, Ethereum and Bitcoin are highlighted as frontrunners in the potential market recovery. You must have witnessed Ethereum’s recovery from lows of under $900 in 2022 to over $2,500, despite the broader market downturn. According to Cryptonews and CoinMarketCap, Ethereum’s resilience is attributed to its dominant role in decentralized applications and the anticipation around upcoming upgrades like Proto-danksharding, which are expected to significantly improve its scalability and efficiency
It is worth noting that Bitcoin is currently capped at only 21 million coins. Soon, in April 2024, an event known as “the halving” will occur. It will cut the creation of new bitcoins by 50%. Events like this typically push Bitcoin’s price up significantly. This hints that Bitcoin could be the leader in the crypto market’s rebound. It clearly presents a buying opportunity, no?
As per InvestorPlace, while some cryptocurrencies may offer significant returns, the majority may not survive long term. So, it’s important to be selective about which cryptocurrencies you invest in. Simply make sure to look for ones with a solid background. In fact, you should spread your investments across different types to stay safe by all means.
Is Bitcoin Going to Crash?
Probably not. According to a comprehensive analysis by Money Mentor, several factors influence Bitcoin’s price volatility. These include potential sales by SpaceX, rising interest rates, Evergrande’s bankruptcy, and changes in regulations. Global economic shifts and inflation also play a role. Basically, all these factors collectively define Bitcoin’s economic outlook.
Despite challenges, Bitcoin shows signs of recovery. Just like we stated earlier, the launch of Bitcoin ETFs and the upcoming halving event have boosted its price. Yet, risks remain due to its speculative nature, regulatory crackdowns, and environmental impacts. Therefore, it is safe to say that the future of Bitcoin, hangs in balance, having potential for both gains and losses.
Frequently Asked Questions
A cryptocurrency crash can lead to significant financial losses for investors, reduced liquidity, and sometimes, an unfortunate loss of confidence in the cryptocurrency market. It ultimately impacts broader financial markets if institutional investors are significantly involved. Its long-term effects may include increased regulation and security measures.
Bitcoin’s recent rise to a new all-time high and the upcoming halving event indicate a potential for further recovery in 2024. All buoyed by favorable macroeconomic factors like central banks lowering interest rates. However, the market’s inherent volatility means future dips cannot be ruled out.
Crypto investing requires a balanced approach. If you’d like to invest, make sure to proceed with caution. It is worth noting that crypto’s recent highs and economic factors suggest that 2024 is promising for potential gains. But remember that, its unpredictability demands caution. You should do extensive research and seek financial advice before making a decision.
Bitcoin is often considered the safest cryptocurrency due to its widespread adoption and established network, but like all cryptos, it still carries risks.
