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Cryptocurrency

Why is Crypto Crashing, and What Should Investors Do?

The year 2022 has brought some serious troubles for cryptocurrencies, like their volatile prices. It was a rough start of the year for the crypto market, but now when we are about to cross the half-year, the troubles seem intact. Almost all currencies have lost a significant percentage of their value with no sign of relief to their investors. The bearish trend that started as a short-lived pullback now seems to grab the market tighter every day. But history is proof that nothing happens in the Crypto Crashing without reason.

Therefore, the biggest question storming into the minds of every crypto investor is “Why is crypto crashing?” and this blog will answer exactly that.

Reasons for the Crypto Crash

The Russia-Ukraine war

The ongoing Russia-Ukraine war that started on 24th February 2022 has caused a massive set-off in the crypto market. The war caused a drop of almost 10% in the crypto market within only 24 hours of its beginning. This drop was a speculative reaction of investors over the geopolitical tension between the two countries and its effect on the global supply. And not only did the crypto market fall, but other investment markets also faced the heat of the “special military operation” declared by the Russian president, Vladimir Putin. The crypto investors were expecting to create a short-term panic that usually goes off in a few days. But the event aroused a panic wave this time and uncertainty in the market. Since investors started to fear the chances of economic collapse due to the disturbance in the global supply chain from this war, they withdrew their investments. It eventually led to high supply and less demand in the crypto market. As a result, digital cryptocurrency prices began to drop. It became one of the biggest reasons for the crypto crash. Though citizens of the war-hit countries were seeking the shelter of digital assets amid the fear of their national currency collapse, it wasn’t enough for the market to raise and gain upward momentum.

Crypto Regulations 

Another reason crypto is crashing is the bombardment of Crypto rules and regulations by major world economies. Due to confusion regarding crypto regulations, most of the new crypto rules and regulations could not strike the right balance. The news of upcoming crypto taxations, TDS deductions, and other restrictions somehow created a low-risk appetite for crypto investors. Hence, when the already prevailing fear of financial instability combined with the imposed tax factor made the perfect recipe for bearish sentiments.

Inflation

Another reason for the crypto crash is related to COVID-19. The world has been dealing with a pandemic for the past two years. It drastically affected the global economy and buying capacities of investors. The massive supply chain disturbance caused by the Russia-Ukraine war also made commodity prices hike. Countries like the USA, Sri Lanka, and India are witnessing record-breaking inflation rates. As a result, the crypto investors wanted more money, so they withdrew it by selling off their crypto assets. Investors see Bitcoin as a haven from inflation. Still, it is not the case in 2022 due to its continuous price drop and growing bearish sentiments. The increased interest rates and rising bond yields by Federal Reserve to tackle the inflation also made investors shift to safer or less volatile investment alternatives. 

LUNA Crash

The answer to why crypto is crashing can’t be complete without mentioning the LUNA crash. The recent fall of LUNA and TerraUST prices has left the terra investors terrified. It created a shockwave that caused a ripple effect on all cryptocurrencies, including Bitcoin and Ethereum. The LUNA coin was one of the top 10 best cryptocurrencies, but its free-fall made crypto investors doubt their investments. In short, the “crypto-panic” caused many investors to have a low-risk appetite which decreased liquidity in the market. 

As you may have noticed, all the above reasons are somehow interlinked to introduce a bullish market in 2022. Good knowledge of these reasons for the crypto crash is necessary to redirect your crypto investment plans and select a sensible investment. 

What should crypto investors do in a Bearish Market?

Below are some tips that crypto investors can follow to survive the Bear market:

  1. Stay updated with the latest crypto updates and redirect your investments accordingly. An excellent crypto exchange platform to get credible information about trendy crypto topics is Flitpay. This platform publishes timely blogs on popular crypto terms and sometimes weekly analyses of crypto price movements in a simple language. 
  1. Try not to panic about the crypto volatility because it is a feature and not a bug. You can try looking for long-term benefits instead of getting affected by the selling pressure. After a long time, bitcoin and other popular cryptocurrencies are trading at low prices. Crypto investors can look at it as an opportunity to build or grow their crypto portfolio based on long-term goals.
  1. Diversification of your crypto portfolio is another key strategy to follow in a bull market. The price fall of LUNA is also one of the reasons for the crypto crash, so it is an excellent example of understanding the importance of diversifying your portfolio. If an investor had invested only in LUNA or TerraUST, he would have faced big trouble. On the contrary, if his investments include different cryptocurrencies instead of one or two, it divides the risk and multiplies the chances of profit. But always choose trustworthy crypto exchanges like- Wazir X, Flitpay, Binance, etc., for trading or investing securely in cryptocurrencies.
  1. For Bitcoin, most crypto strategists and experts suggest HODL and patiently wait out the storm. You can also follow Dollar-cost averaging (DCA) by continuously buying small amounts of a cryptocurrency in a period regardless of its price. Even though it is a long-term strategy, it proves very beneficial in crypto winters. 
  1. Set clear goals for your crypto investments and avoid the blind following of peer group sentiments in FOMO. Start with intensive research about the coin before putting your money on it, and stick to your study.

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