While watching the news, you may have sighed and wondered, “Why is crypto crashing again?” The cryptocurrency market seems to often move in wildly unpredictable ways. Is there any rhyme or reason for these price movements?
We’ll start with an old economics idea that could explain the crypto market’s behavior. Then, we’ll go through the recent instances when the market crashed. More importantly, we’ll explain why these crashes are a great opportunity for investors.
Those who doubt crypto often remark at how easily the market could crash. While they see a crisis, investors see a great time to buy more cryptocurrencies. If you want to get into crypto, this guide can help you choose your first coins!
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Crypto and the “invisible hand of the free market.”
Back then, the question was, “Why are stocks crashing?” Nowadays, we ask, “Why is crypto crashing?” Still, one of the most prominent economists ever has some answers.
It’s Adam Smith, and we could explain these price behaviors with his “invisible hand” concept. This is what he calls the “self-interest” that guides people’s behaviors.
Simply put, some folks want to buy stuff, and others want to sell them. Buyers demand products and services at a certain price. Meanwhile, sellers provide them to earn money.
Smith believed that leaving peoples’ self-interest is good for the economy. This motivation helps the market run smoother than if it’s regulated.
You may apply this concept to the stock market. Investors want to buy shares, and others want to sell them. You may see their target prices on opposite sides of the market’s order book.
Buyers will try to catch a certain stock price. When it’s not available anymore, it goes up a bit. Once selling begins, the opposite happens as it drags the price down.
The crypto market works the same way. However, other forces move it too. Together, they push and pull the prices quickly and frequently. Hence, the answer to “Why is crypto crashing?”
Related Article: Investing in Litecoin
What are the forces that move crypto?
There’s more than one “invisible hand” that influences the crypto market. Here are the other factors that move the prices:
- Supply and demand – It’s one of the most basic ideas in economics. When lots of people want a product, the price goes up. The opposite happens when there are few buyers. The same goes for cryptocurrency prices.
- Lack of regulation – Laws help in stabilizing the economy and the stock market. However, we still don’t have a lot of guidelines for crypto. It’s one of the reasons for its weird behavior.
- Speculation – Investors watch the news to see how their investments will perform. Negative events can lower confidence in assets. As a result, investors will likely pull their investments to save their finances.
- Adoption and acceptance – Back then, cryptos had few investors because they’re often not useful in the real world. Only a few stores accept bitcoin and other cryptocurrencies. More companies are adopting these digital assets, though.
- Whales – They’re the large investors in the crypto space. These people own millions of dollars worth of cryptocurrency. If whales sell that much, they can pull the market significantly within seconds!
- Blockchain scalability – The network that enables cryptos is called a blockchain. The inferior ones have trouble handling a large volume of transactions. This makes it harder to use a cryptocurrency. As a result, people are more likely to sell this coin.
Why was crypto crashing back then?
The fund manager made famous in "The Big Short" has warned crypto investors to prepare for a crash.
— CoinDesk (@CoinDesk) June 21, 2021
The news can help people make decisions. Specifically, investors check reports to learn what to do with their assets. Good news may encourage them to buy stocks or cryptos.
On the other hand, bad news could cause them to sell assets. In turn, cryptocurrency prices drop. Here’s why some people asked, “Why is crypto crashing?” back then:
- China and Elon – Two events caused a crypto crash in mid-April. First, China warned about crypto exchanges. Second, Tesla CEO Elon Musk said his company wouldn’t be accepting bitcoin. These ended the all-time high of Bitcoin and Ethereum.
- Gas supply hack – A group called DarkSide breached the Colonial Pipeline. This caused a nationwide gas shortage. Then, the authorities seized $2.3 million in bitcoin worth of ransom from DarkSide. In response, investors may have sold their bitcoin, pulling the bitcoin price down.
- Delays to recovery – The COVID-19 Delta variant is spreading across the world. This may get in the way of economic recovery and crypto adoption. Investors may have sold off their coins after learning about this.
Related Article: Bitcoin Mining Explained
Why is crypto crashing a good thing?
Some people think the price drops are a bad thing. They scoff at how cryptos crash because of a celebrity Twitter rant. Yet, this just means the market is truly free!
People move the crypto market. And what moves people? It’s their motivations and behaviors. These determine how they react to situations, such as a tweet from Elon Musk.
In this manner, the crypto market truly reflects what investors want. If they believe in an altcoin, they will buy it. Otherwise, they may sell it. In response, crypto prices go up or down.
Others see them as the end of cryptocurrency. For investors, these are chances to buy coins at bargain prices! Here’s another reason why crypto crashes are good.
Take AXS coins as an example. These are the native cryptocurrency of the NFT game called Axie Infinity. It’s well-known for its play-to-earn mechanics, especially in the Philippines.
Let’s say you bought 10 AXS tokens in June 2021. They cost around $3.00 back then. At the time of writing, the price of AXS was $49.19. You could have earned around $460 in total!
This may not even be its record high. As more people play, the price may rise to three digits! If they cost too much, you could just wait for a dip to buy some.
If you want to be an investor, you should avoid short-term thinking. Instead, perform long-term planning. Learn more about cryptocurrency to find great investments.
You may check online market data for free. Before buying a crypto coin, see how it performed within the last 24 hours and the past months. Use these to understand how the coin behaves.
Also, you could read more crypto articles from Inquirer USA. These resources are for educational purposes, though.
Why limit yourself to cryptocurrency? Check Wall Streets and other assets. A diverse mix of investments can reduce risk and maximize profit.
Learn more about crypto crashes
Why is crypto crashing again?
At the time of writing, the crypto market is getting back up after a dip. If it’s crashing as you’re reading this article, it’s due to several factors.
Why do cryptocurrency prices go up and down?
Crypto prices go up when many people buy them. The opposite happens when there are a lot of sellers. People buy and sell cryptos for various reasons, though.
What should I do during crypto crashes?
If you have some cryptos, you may just wait for the crash to end. If you haven’t bought cryptos before, a crash lets you buy some at low prices.