Recently, cryptocurrencies have taken a tumble in the market raising concerns among the industry players as if we could be in the midst of another crypto crash. With all doom and gloom, there is always a silver lining to every crypto crash like 2013, 2018, 2020, and 2021. When will be the next crypto crash? Will Bitcoin crash to zero? What crypto will survive the crypto crash? What are the reasons for a crypto crash? Is another crypto crash coming in 2022? Let’s find out!
What Happens When Crypto Crashes?
Recently, the financial stability oversight commission reported a list of challenges to financial stability. Digital currencies were not an exception here, though having very little influence on financial stability.
For example, the last dangerous-level destabilization experienced by the U.S economy was the Subprime mortgages. This occurred as a result of the accumulation of a complex combination of factors. Most of the active agents in this event were actors from the mainstream economy.
On the other hand, Bitcoin and all cryptocurrencies, in general, have not been able to surmount their rebel status within the mainstream financial services ecosystem, since price movement takes place outside the confirms of regulated agencies via unregulated exchanges. Yet, the effect of the crypto crash is not deemed catastrophic on a global scale.
According to recent reports, individual investors and bots are behind most of the crypto exchanges. Most of the large corporations and government bodies are still laid back about cryptocurrencies. This in part helps minimize the impact of a catastrophic crypto crash on the global economy. The online publication “Axios” estimated a sum of $250 billion as the monetary impact of a Bitcoin crash like the Bitcoin crash 2013.
Why Does Crypto Crash Happen?
Going through crypto crashes history; here are some of the possible reasons behind a crypto crash:
1. Crypto investors are taking on too much leverage.
In early January, Crypto data firm CryptoQuant’s recorded BTC leverage ratio hitting an all-time high, which indicated that crypto investors are risking more in the crypto market. “Simon Peters” eToro senior account manager stated that with these amounts of leverage, cryptocurrency’s short-term volatility might be unavoidable.
Peter has also added: “Price decline could cause the liquidation of long-term positions”. When the price dropped, this liquidation could make this drop drastic. Look at what happened to the stock market in 1929 and 2008. The Crypto market might not weather much of such a scenario if it experiences a crash like that due to its inadequate liquidity.
2. Lack of liquidity in cryptocurrency markets.
Cryptocurrency will ever be plagued with leveraged investors liquidating a large portion of their assets, which destabilize the market equilibrium. Unlike the stock market, the crypto market is not always overloaded with buyers waiting to buy hoarded coins released in numbers into the market.
This explains why crypto crashes occur mostly during the weekends because few investors are willing to buy when virtually every other investor is selling.
3. Cryptocurrency regulation.
According to Peter, miners had to relocate to a miner-friendly jurisdiction after the ban of crypto mining in China, in June 2021. The implications were very significant for crypto investors since there was a weighty decline in the network’s hash rate.
For newbies, a hash rate is the number of calculations performed per second. Apart from the influence on crypto price, a hash rate is also very significant for miners to mine coins. Thus, the hash rate decline implies a decline in price which can help in analyzing when the next crypto crash could set in.
4. Crypto security breaches cause fear.
Another reason for a crypto crash is blockchain and network security. It can happen by analogy with regulatory disruptions from government agencies generating fear that makes people go on a selling frenzy. This way, we will get the market oversaturated with supply more than what is demanded. That is a recipe for another crypto crash coming.
5. Crypto influencers causing volatility.
Sentiment also makes an impact on cryptocurrency. Peter reminded investors to keep in mind crypto advocates and influencers who can cause a capital inflow via tweets. A notorious example is the support of Elon Musk for Dogecoin via tweets leading to its explosive price increase sometimes as well as an explosive downturn. Such examples create what we like to call the “crypto bubble”.
Crypto Crashes History
Looking through crypto crashes history; here are some of the crazy ones.
Bitcoin Crash 2013
The Bitcoin crash 2013 occurred due to the project’s success, which saw tons of investors rushing in to jump on the new money-making opportunity. Mt.Gox bitcoin exchange received so intense trading volume that it crashed. Hackers immediately attacked this weakness and forced Mt.Gox into an unparalleled total shutdown.
After the event, Bitcoin’s prices tumbled from $260 to $50. The Guardian also reported that Bitcoin’s Ban in China at the end of 2013 resulted in about a 50% loss in its value overnight. Up today, China maintains a turbulent relationship with cryptocurrency with new restrictions coming regularly.
Crypto Crash 2018
2018-cryptocurrency crash had both the Bitcoin Crash and the Great Crypto Crash. The Great crypto crash 2018 took place because of the sell-off of most cryptocurrencies, which started in January 2018. The crash happened after an unprecedented boom in 2017. What followed next was about a 65 percent drop in value between January 6 and February 6, 2018.
Other cryptocurrencies followed suit in the crash after their new peaks from December 2017 through January 2018. Upon reaching September 2018, virtually all cryptocurrencies have suffered an 80% decrease from their peak in January.
According to reports, the 2018 cryptocurrency crash was far worse than the Dot-com bubble’s 78% collapse. By November 26, Bitcoin further crashed 80% from its all-time high, after it had lost almost one-third of its value in the previous week. The crypto crash 2018 was more intense for Bitcoin than the Bitcoin crash 2013.
Crypto Crash 2020
The year 2020 was drastic for the market space including the cryptocurrency market. The Bitcoin crash was even more immersive as it lost half of its value in just two days. The coin lost over 50% of its value. For example, it dropped from above $10,000 in February to below $4,000 in March, which is just about a month. The crypto crash 2020 was no child’s play and investors can testify to that.
Crypto Crash 2021
2021 was by far the best year for cryptocurrency but also devastating in a flash. In April, Bitcoin reached a new ATH of $64,000 and became the number 1 conversation-starter in the investment community.
Unfortunately, about $1 trillion of BTC’s value was erased off the global crypto market in a single week. Amidst the entire crisis, Elon Musk rejected his plan to accept Bitcoin as a form of payment for Tesla Cars.
Next, there were new crypto crackdowns in China, the public also got to learn that Bitcoin mining is not just environmentally-unfriendly but even devastating. All these media buzzes left crypto investors at the hands of fate as they look through the crypto crash 2021.
Is Another Crypto Crash Coming in 2022?
About $1 trillion in market value has been erased since early November due to the crash in cryptocurrency prices. According to CoinMarketCap, more than $200 billion was wiped off in just 24 hours. Unsurprisingly, this has stoked fear among investors of another crypto crash coming.
Cryptocurrencies suffered a total market value dip from $3 trillion to around $1.7 trillion in early November. As time went on, Bitcoin further shed its value from $41,000 to $36,000 (about nearly half of its value since early November). Could this be Bitcoin crash 2013 all over again or will we be witnessing a wider crypto crash like the crypto crash 2018?
Clem Chambers Senior Contributor at Forbes also claims that a bull trend will be difficult for a bull case right now because the bear case is dominant. Therefore, there is a fear of a crypto crash 2022 right now with crypto crash 2021 still fresh in mind. Investors sometimes see this as the best chance to jump in before the next uptrend in price.
Why is Crypto Crashing Right Now?
The rise and fall of cryptocurrencies have been more like a roller-coaster lately. However, cryptocurrency is not the only one to have experienced a wild end to 2021. Global stocks experienced a downturn due to the fear around a new Covid-19 variant, high inflation, and this fear was carried over into the cryptocurrency industry amid further crypto regulations.
The start of December 2021 oversaw a price downturn of various reputable digital assets. Cryptocurrency further dropped in value in early 2022, with BTC’s price declining to around $40,000 per coin on January 21. Some newbie traders are even asking: “Will bitcoin crash to zero?” However, that is a scenario very unlikely to happen.
One of the reasons for the crypto crash has been Tesla’s decision to renegade using BTC as a form of payment. China’s clampdown on cryptocurrency also further plummets the crypto market’s value.
China’s restrictions extended to banning all of its banks and financial institutions from offering clients any services that revolve around cryptocurrencies. China also warned against speculative trading, which is why some users fear another crypto crash coming.
The China Banking Association, the Payment and Clearing Association of China, and the National Internet Finance Association of China released a joint statement on the issue of crypto. Pressing issues like these are one of the reasons for the crypto crash that the market is experiencing.
Next Crypto Crash: When Will It Be?
According to experts’ speculations, Bitcoin is said to be in for a sharp decline in the months to come. The crypto is now below $50,000 after its ATH of $69,000 in November, which is down almost 30% from its previous peak.
Read further: When the next crypto crash will happen?