Why Crypto crash happens – causes and precaution
In the past few years, cryptocurrency has been on a rollercoaster ride of ups and downs. However, in the past few months, there has been a significant market fall. So, what led to this crypto market fall?
Crypto Market Crashes
Cryptocurrency was being called the future of money. Last year the crypto market was seeing new heights and was gaining more legitimacy.
But the recent crypto crash, which wiped out more than USD 1 trillion worth of digital money in the last six months, has posed serious questions about investing in cryptocurrencies.
- The digital currency Luna is now nearly worthless, and a related coin, TerraUSD, is also struggling. And Tether, a token known for its stable price, needed an urgent rescue last week.
- TerraUSD’s market value was down to USD 1.3 billion from nearly USD 19 billion earlier this year. TerraUSD had a huge meltdown last week, falling well below its USD 1 value.
- The crypto crash put pressure on the price of Bitcoin and other cryptocurrencies and erased the value of TerraUSD’s sister token, called Luna, It is used as collateral against TerraUSD and is supposed to keep it pegged to USD 1.
- Other cryptocurrencies such as XRP have fallen by 34%, Solana is down by 38%, Cardano has tanked 35%, Stellar has fallen by 29% and Avalanche is down by 39% since January.
WHAT LED TO THE CRYPTO CRASH?
The correct reason for the crypto crash is not known but a few things may have led to this are
- Rising inflation, interest rate hikes, and geopolitical instability could be partly to blame,
- Russian War, the war has prolonged than expected which had verse effect on the commodity market and led to inflation and lowered crypto value.
- One major reason for the current crash in the crypto market is the downfall of the stablecoin TerraUSD.
- The TerraUSD crisis has rippled through the crypto industry and sent prices of almost all well-known coins down by a considerable amount.
- Now when the interest rates are high, there is a big pressure for selling. And that is what explains the crypto meltdown. So, it’s a phenomenon of the perceived demand and supply for crypto as a valuable asset.
What’s Next, Are there more crypto crashes?
Let’s find out how people react to this crypto crash. While some believe that the recent dip in the crypto market gives them an opportunity to buy at a lower price and book a profit, many have lost faith in digital currencies, especially with the downfall of some stablecoins.
Many of the people who bought it recently have lost their shirts. Many of the people who put their money into other cryptocurrencies have lost a whole lot more.
The Crypto crash has spread to other online assets, too. Non-fungible tokens are also in distress. The blue-chip NFTs, such as Bored Apes, have lost half their hypothetical value, while other, less popular issues are falling even faster, and trades of these digital goods are slowing overall.
Here again, schadenfreude is selling high. Whether all this pleasure taken at the expense of rubes who bought in only to lose out will continue expanding in the weeks ahead or if it’s just a short-term bubble of its own remains to be determined.
The collapse of cryptocurrencies could reverse into another boom at any moment. It’s happened before. Proponents urge their fellow believers to “buy the dip” and keep the faith, and that faith has sometimes been rewarded.
What should investors do in this crypto crash?
It might be the most difficult thing to do but the best solution is to simply Hold your assets. Don’t sell them in panic, however grim the picture might be. Remember that the value of crypto assets has risen manifolds during bull rallies and there’s no reason why it can’t happen again.
The world needs to see some positive signs coming from somewhere to be comfortable investing and raising the value of crypto assets. The increasing use cases of crypto assets and blockchain technology along with the phenomenal rise of NFTs (cricketer Rohit Sharma announced his personal NFT drop on the day crypto assets tumbled worldwide) also makes for a compelling case to simply sit tight and wait for the tide to turn.
Read about What is staking in Cryptocurrency: A Beginner Guide.
For those looking to invest in cryptocurrencies, my suggestion would be to wait a while until the bottom is closer. You don’t want to invest in new technology and watch its value go even further down. Remember to keep a watchful eye out for positive signals and follow global news and equity markets with interest to gauge the mood of the crypto world as well.
Conclusion
In conclusion, it is clear that a variety of factors led to the crypto market fall. Most notably, the lack of regulation and oversight made it easy for bad actors to take advantage of investors.
Additionally, the volatile nature of the market made it difficult for investors to predict what would happen next. As a result, many people lost money when the market crashed.
It is important to be careful when investing in cryptocurrencies. Make sure to do your research and only invest what you can afford to lose.
