Cryptocurrency

5 Reasons for Crypto Crashing 2022 (You’ll be Surprised!)

The cryptocurrency market has had a tough start to the year. People began worrying about the crypto crashing in January 2022 after plunging prices had wiped away $1 trillion in value since November. 

Prices rebounded in March, recouping some of the losses. Then crypto plummeted hard again, with bitcoin falling below $20,000 from its all-time high and other cryptocurrencies faring even worse.

The market’s message was clear: the crypto crashing 2022 has just begun.

Crypto Crashing 2022: How Recent Bitcoin Downturns Wiped Off Vast Sums Of Money?

These are the top three cryptocurrencies by market capitalization, excluding stablecoins Tether (USDT) and USD Coin (USDC), which are supposed to be linked to the US dollar.

This isn’t the first time cryptocurrency has plummeted. 

Bitcoin (BTC) had lost almost 40 percent of its value so far this year as of May 12. On the other hand, Binance Coin (BNB) had lost nearly 50% and Ethereum (ETH) down by 78%. Most were showing concerns about whether it was already crypto crashing 2022 happening.

Cryptos had another significant slump from mid-May to mid-July 2021. Bitcoin dipped to $17.5 in June 2022. Despite the volatility, many investors remain enthusiastic about cryptocurrencies.

“As crypto use grows, it will become more stable,” says Vin Narayanan, who is the VP of Strategy at Early Investing. However, until then, investors may want to know what to look for to avoid being burned by cryptocurrency crashes. 

As unfortunate as it is, some factors contributed to this crypto crashing series. We will look at them one by one to understand the analysis of the market.

Causes of Crypto Crashing 2022

     1. Overly Leveraged Cryptocurrency Investors

Crypto analytics firm CryptoQuant’s BTC leverage ratio reached all-time highs at the start of January, indicating that more investors were taking risks in the cryptocurrency market. Similar to conventional markets, crypto investors frequently use loans to finance future acquisitions.

Miners can use this to protect themselves against potential price declines in the coins they mine. According to eToro senior account manager Simon Peters, these are the levels of leverage that may portend turbulence in the short term for cryptocurrencies

“Price drops could induce liquidation of long-term assets,” Peters argues of any asset class. Prices might fall even lower as prices fall and futures holders begin to liquidate their positions. It’s a similar cycle to what occurred in the stock market in 1929 and 2008. 

However, we should know about the reasons for the crypto crash. These crypto crashes are especially risky in markets with little liquidity, such as cryptocurrency.

     2. Cryptocurrency Marketplaces Lack Liquidity

Due to leveraged investors liquidating a big portion of their assets, the crypto markets face a liquidity problem. In contrast to the stock market, there is not constantly a swarm of enthusiastic purchasers wanting to purchase unsold coins. Narayanan claims, “This is why large institutions are unable to trade little coins.

They eventually rocked the markets.” For example, when a whale – an investor who maintains a substantial holding in a particular asset – sells massive sums of cryptocurrency, it might flood the market. The coins just flow into the broader market, creating a surplus of supply with minimal demand.

     3. Regulating The Use Of Crypto-Currencies

When China banned cryptocurrency mining in June 2021, “miners were driven to relocate to more miner-friendly nations,” according to Peters. “We witnessed a considerable fall in the network hash rate,” according to the ramifications for crypto investors.

A hash rate is the number of calculations completed per second in the crypto industry. These computations enable miners to manufacture the coins they are mining and also influence the price of a coin.

When prices fall, so does the hash rate. It’s been proposed that the opposite is also true. This is frequently because miners get compensated in cryptocurrencies. However, when governments restrict mining via regulations, the overall price of cryptos may fall, leading to crypto crashing in 2022.

     4. Influencers In Crypto Are Causing Volatility

Peters advises cryptocurrency investors that “crypto enthusiasts and major influencers can tweet and induce a flood of capital.” This is evident in Elon Musk’s support for Dogecoin. Tweeting could also have the opposite effect. 

This is because the value of this asset class is determined by investor sentiment and crypto’s lack of liquidity. Stablecoins may be a solution to this dilemma for investors. With market fluctuations, traders can utilize this form of a coin to simply move in and out of other crypto positions.

     5. Correlations Between Cryptocurrency and The Stock Market

Cryptocurrency prices are influenced by many of the same factors that influence stock values. Because traders and investors regard cryptocurrencies similarly to equities, the market tends to follow the same pattern. 

Rising inflation, higher interest rates, and mounting fears about company earnings and economic development have damaged investors’ tolerance for risk in 2022, resulting in significant falls in major indices. 

The blue-chip index is down 18% this year and the internet Nasdaq Composite has dropped 32%.

The uncorrelated nature of cryptocurrencies is part of what makes them so appealing. In other words, it should be free to float independently of the rest of the market. However, as the crypto crashing 2022 has demonstrated, this is not always the case. 

Conclusion: Crypto Crashing 2022

People have every right to be enthusiastic about blockchain technology’s future potential. DeFi allows for almost immediate cross-border transactions at cheap costs and can democratize the system so that even inhabitants of emerging markets can participate. 

Smart contract-based cryptocurrencies have the potential to transform supply networks. So, if you are someone into cryptocurrencies, just keep your faith. Things will get better. 

One thought on “5 Reasons for Crypto Crashing 2022 (You’ll be Surprised!)


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    Itís hard to find well-informed people on this subject, but you seem like you know what youíre talking about! Thanks

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