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Why is Crypto Crashing?

05.05.2022

The crypto landscape is a highly volatile environment, and price fluctuations are typical occurrences in this maturing industry. There are many factors that drive crypto crashes. In this article, we will try to answer the question currently asked by many fellow crypto HODLers – why is crypto crashing in 2022?

 

History Repeats Itself

This has happened before. If you are a new crypto investor, you may have missed the biggest crypto crashes of 2011, 2013, and 2018, when crypto reached its lowest lows: -99%, -83%, and -84% respectively.

In June 2011, Japan-based Mt. Gox – the largest Bitcoin exchange in the world at the time – announced that hundreds of its accounts had been hacked, resulting in millions of dollars worth of Bitcoins stolen. Following the announcement, Bitcoin price fell by 99% – to one penny.

In April 2013, Mt. Gox again managed to send crypto prices down – this time, by -83%. Bitcoin then was the crypto buzzword, and trading volumes were so high that Mt. Gox crashed because hackers again took advantage of its vulnerability.

2017 was a milestone year for crypto, with prices soaring. However, the year ended miserably for the crypto scene as investors rushed to harvest their gains after massive hacks in Korea and Japan, followed by worrying rumors about China banning Bitcoin and other coins.

 

Why is Crypto Crashing?

Cryptocurrency prices can be affected by many factors, mainly outside forces, that can affect how confident people feel making investments in alternative assets.

 

Macroeconomic Factors

Macroeconomic factors include interest rates, inflation, national income, unemployment levels, and others.

Surely, these factors can significantly affect your investment portfolio having influence on the economy on a national or even worldwide level.

Geopolitical Factors

The impact of geopolitical risk (GPR) on the crypto market dynamics and asset pricing has only recently been addressed, showing that it is mainly a heightened level of GPR that can positively affect crypto price fluctuations. The present Russian-Ukrainian tensions are a good example.

As the conflict continues to escalate, the Ukrainian government has been receiving significant crypto donations from around the world due to the decentralized, anonymous nature of cryptocurrencies.

To add, the average GPR index doesn’t typically make crypto prices jump.

Crypto Regulation

Even with the rising mass adoption, the crypto industry is still developing, and crypto laws and regulations are developing along with it.

An anti-crypto law or regulation – such as a ban on crypto and/or crypto exchanges – adopted by a major country can result in weakened crypto positions. In turn, this may lead to crypto investors looking for exits, which typically sends crypto prices down with a thud.

Public Figures and Global News

The announcements made by public figures or any breaking news can affect the behavior of crypto investors.

These factors would make crypto enthusiasts either go all in or massively panic sell. Think about Elon Musk whose crypto-related tweets and comments often send the prices to new highs or new lows.

 

Final Thoughts

Investing in crypto means making a volatile investment, but the good news is that grave fluctuations in the prices of cryptocurrencies have happened on several occasions before – in other words, crypto crashing in 2022 is nothing new. We highly recommend managing your risks and diversifying your portfolio.

 

To stay up to date with the latest crypto developments, consider joining Coinmetro’s Discord or Telegram communities. Alternatively, you can sign up to our platform to enter the exciting crypto market – safely and legitimately.