Why Does Crypto Crash? 6 Reason

Recent cryptocurrency downturns have wiped out huge amounts of wealth. 

Cryptocurrencies have had a rough start to the year. As of May 12, Bitcoin (BTC) had lost nearly 40% in value year to date 

Crypto investors taking on too much leverage. 

Crypto data firm CryptoQuant's BTC leverage ratio hit all-time highs in  early January, meaning more investors were taking on risk in the crypto  space.  

Lack of liquidity in cryptocurrency markets. 

The biggest problem the crypto markets face when leveraged investors  liquidate a large portion of their assets is the overall liquidity of  the markets. 

Cryptocurrency regulation. 

When China banned crypto mining in June 2021, "miners had to move to  other jurisdictions that were more miner-friendly," Peters says.  

Crypto security breaches causing fear. 

Blockchain and network security are other factors that could cause a  crypto crash, Peters says. This kind of crash would unfold similarly to  regulatory disruptions from government actors. 

Crypto influencers causing volatility. 

When it comes to sentiment, Peters says cryptocurrency investors need to  keep in mind that "crypto advocates and key influencers can tweet and  cause an inflow of capital." 

Cryptocurrency correlations with the stock market. 

Part of the beauty of crypto is that it should be an uncorrelated asset.  In other words, it should float freely, divorced from the rest of the  market.  

Cryptocurrency correlations with the stock market. 

Part of the beauty of crypto is that it should be an uncorrelated asset.  In other words, it should float freely, divorced from the rest of the  market.