2021 has been the top all-time high, but it's a thing of the past now. As a result of the recent crypto crash, major virtual currencies and digital assets are now experiencing unprecedented lows in 2022. The crypto market is not the only one facing this but it appears that the stock market is also downtrend now.
Bitcoin's value has dropped by more than half since its peak in November 2021, causing cryptocurrencies to go DIP. Investors may be concerned after seeing such steep drops in Terra (LUNA) and TerraUSD (UST). No one could have predicted such a precipitous drop because both cryptocurrencies were high bounty months back. Because of the negative sentiment that spread throughout the crypto market, investors withdrew their funds, causing Tether (USDT) to lose its peg to the dollar.
The crypto crash can be overwhelming for investors and crypto enthusiasts, but it is not impossible to navigate the turbulent waters. Extensive research and watching the market without emotions while keeping long-term goals in mind could be the key to making it out alive.
What is a Crypto Crash?
Cryptocurrency markets are also the stock and traditional markets. When the value of digital assets or cryptocurrencies is rising, investors refer to that phenomenon as a BULL MARKET. A continuing downward or falling of the market is referred to as a BEAR MARKET. After the bear market, that's when the crypto crash happens.
Token prices go parabolic, with a new all-time high following an all-time high. Investors become greedy, and 10x gains are common. After months or years of price inflation, the tables are turned, and asset prices plummet, the market went DIP.
Investors who have been in crypto for some months and years will be familiar with this scenario. Furthermore, the crypto crash circumstances frequently coincide with an increase in the number of stories highlighting losses from unlucky or reckless investors who invested their life savings in the crypto.
Has crypto crashed before? A brief history
Dramatic gains and losses are nothing new for those who have been investing in cryptocurrencies for years. Bitcoin reached a record high of nearly $20,000 in December 2017 but was trading below $3,500 by December 2018.
Bitcoin was the talk of the investing world in April 2021 when it soared past an incredible $64,000 for a single coin. Then, in a single week, $1 trillion in value was wiped out of the global crypto market. Which caused Elon Musk to break his promise to accept Bitcoin as payment for Tesla vehicles.
The 2020 Pandemic was also another great deal in the history of crypto crashes, the markets crashed in March 2020, and the Bitcoin market crashed a crash that has been among the worst crashes ever. Bitcoin's value fell by half in just two days. Over a month, it dropped from above $10,000 in February to below $4,000 in March.
Bitcoin also had a historic year in 2017, peaking high close to $20,000. Suddenly, on December 27, it all came down-trending and crashing down as investors cashed in on what was a bubble, sending the price plummeting below $12,000.
As Bitcoin gains popularity, "the ups and downs can be breathtaking." "Taking the long view puts these moves in context," said Greg King, founder and CEO of Osprey Funds. So the market is not stable and crashes like this have occurred several times even more than it was listed above in the back years also.
But you shouldn't let that stop you from trading and crash time is the best time to buy, as the greatest investor (Warren Buffet) of all time said: "The best time to buy is the time of panic".
Why is crypto crashing?
It is critical to remember that crypto assets are not the only ones crashing. The stock market has also been in a major slump, and policymakers are attempting to control inflation by tightening monetary policy and raising interest rates.
Inflations, macroeconomics and high-interest rates are also among the factors influencing people's willingness to invest in risky digital assets and all other alternatives. As interest rates rise, savings accounts become more appealing, and some people may be more comfortable putting their money where it can earn predictable returns. When prices fall sharply, as they did in the spring of 2022, it can exacerbate market pressure by forcing some investors to free up cash to meet other obligations.
Regulators' actions around the world also contribute to investor doubt or skepticism and lead to a crypto crash. As public interest in cryptocurrency has grown and keeps growing, officials are debating the technology's implications for monetary policy, security, and the environment.
As in most markets, fear, uncertainty, and doubt also play a significant role in perpetuating a crypto crash. Uncertainty tends to make people less likely to invest in speculative assets.
Furthermore, when a cryptocurrency project fails and a large number of people lose money, the cryptocurrency market tends to panic. The repercussions frequently result in a sell-off and sum up to the crypto crash.
There has been a major cause of crypto crashes, but let's check some other unpredicted causes of this year's (2022) crash :
2022 crypto crash: Major Causes
Russia and Ukraine War
For millions of displaced Ukrainians, the war in Ukraine has been a nightmare. However, the war's repercussions are felt all over the world. Instability in international relations has a knock-on effect on all asset markets. Furthermore, the war causes a worldwide shortage of wheat, fertilizer, and other necessities. Despite the negative impact on asset markets, they were already declining before Russia invaded Ukraine.
Although cryptocurrencies play an important role in financing and providing aid to both sides of the conflict, the crypto market is subject to the same risks as any other market.
2021 pandemic (COVID 19)
The Covid-19 pandemic forced most of the world to shut down for extended periods. The global economy effectively came to a halt during this time. Only a few critical businesses were able to operate, putting millions out of work and forcing businesses to close down across the board.
Cost of Living and Energy
Many European countries rely on Russian gas and oil. Several countries are seeing price increases on energy and some other necessities like food and medicine. As a result, there are fewer people with spare cash to invest in cryptocurrencies, digital assets and the stock market.
After the March 2020 market crash, investors enjoyed a huge bullish run in which asset prices inflated. Many people were at home with the money they would not have had otherwise. Job losses and lockdowns encouraged retail investors to stretch their disposable incomes as far as they could, and many made a tidy profit trading stocks and cryptocurrencies.
Fast forward to late 2021, and the cost of the living crisis became apparent globally. Today, food shortages, supply chain problems, a lack of affordable housing, and high electricity prices restrict retail investors from capitalizing on market downturns. Moreover, most people cannot afford to speculate in the way they might have at the start of the pandemic.
How to navigate stormwater and avoid getting rekt
Navigating the crypto market during a crash can be overwhelming and difficult, particularly for new investors. Several cryptocurrency analysts have advised people to "buy the dip" because they believe the market will soon begin to rise. However, for those who have already invested in low-cost tokens and want to do more, or for those who want to avoid investing in the current bear market, investing in a token during its pre-sale phase is an option.
The cryptocurrency markets are notoriously volatile and susceptible to global events and one of the most basic ways to avoid a cryptocurrency crash is to never invest more than you can afford to lose in the first place.
And also by employing a solid investment strategy, you can mitigate the effects of a crypto crash. Some investors prefer to take profits throughout a bull market cycle to offset any losses that may occur following a sudden drop in price action.
Short selling is another way to navigate a bear market or a crypto crash. Short selling is a kind of trading strategy where all profits from an asset's price decline. It brings about speculating on negative price movements. Short selling is a sophisticated trading strategy that exposes investors to significant risk. Short selling, on the other hand, is frequently used by experienced traders to reduce losses during a bear market.
Furthermore, the tail end of a cryptocurrency crash is when a lot of innovation happens. A bear market is frequently regarded as the best time to build and create new exciting products, and many great companies are built during a bear market. Great investors are learning from Warren Buffet, who also said, "Be greedy when people are fearful, and fearful when people are greedy."
Crypto projects place less emphasis on token performance and marketing. Instead, they can devote more time to what is truly important in the technologies and products they develop during the bear market.
The bear market is the ideal time for investors to learn more about their investments and broaden their understanding of global investment trends. Educating oneself can also be one of the most effective ways to navigate a bear market. Understanding technology and market trends could put you in a better position for the upcoming bull market. Learning how to trade without emotions can also help you maximize your profits.