Sunday, September 25, 2022

What Led to the Crypto Crash? The 5 Main Factors 

What Led to the Crypto Crash

The entire crypto market has been playing limbo, seeing how low it can go day after day. As the lowest plunge hits an 18-month record low in overall value, we are all left wondering what led to the crypto crash and what the biggest factors were that culminated in the perfect storm of recent months.

The two biggest cryptocurrencies on the market, Bitcoin and Ethereum, have recently dropped by around 60 percent to below $20,000 in value and a total of over 25 percent to just about $1,000, respectively. The crypto market as a whole fell just below its $1 Trillion market value by about $20 billion, and almost every single crypto token on the market is seeing nothing but downward-pointing red arrows. In this article, we explore the main reason behind the crypto crash.

The Luna-Terra Crash

The smallest of the dominos that seemingly set off the chain reaction, the Terra-Luna crash, while not an astronomical level of destruction by itself, shook crypto investors to the core. The rippling paranoia that lingered as a result of stable coin falling, which lost investors billions and wiped out entire life savings, may have sent fear-driven cracks up the crypto market as a whole and later manifested in the below.

The Stock Market

As any long-term crypto investor should know, it is always worth keeping an eye on the equity and stock market if you want to make wise decisions because the crypto and equity markets are inherently linked. When the stock market dips, so do cryptocurrencies.

It has been a rough year for the S&P 500, as tech firms like Amazon, Tesla, and Apple fell more than 6%, and the Russian Ukrainian conflict only adding fuel to an unstable fire. And the crypto market, of course, followed a similar general pattern.

The Rise in Interest Rates

The US Federal Reserve has agreed to raise interest rates in an effort to curb inflation. According to a Wall Street Journal story, the Fed will employ an aggressive plan to raise the cost of debt, reduce spending, and control record-high inflation. Commonly regarded as a leading recession predictor is the aggressive increase in interest rates.

The Fed’s decision was among the biggest reasons for what led to the crypto crash as panic selling spirals on. Following the announcement, both the stock market and the cryptocurrency market had a sharp decline. Investors lost faith and started selling off their digital assets, which caused carnage in the cryptocurrency market.

Regulatory Hurdles

As they work to regulate cryptocurrencies, governments throughout the world have been closely watching the global crypto market as it experiences wild ups, downs, dips, and surges.

While some governments are heading toward different regulatory frameworks regarding cryptocurrencies, taxation, tight restriction, or a free-market approach, much of the world still does not have a comprehensive legal guideline to keep it in check. That is a mess of instability waiting to happen.

Celsius Network

Decentralized finance company Celsius Network said on Sunday that it is blocking all cryptocurrency transactions due to “extreme market conditions.” All the cryptos fell during the massive sell-off that followed the closure.

The firm had stated in a blog post that it was taking this crucial decision to stabilize liquidity and operations while taking actions to preserve and protect assets. They also said that in keeping with their commitment to their consumers, Celsius would continue to give users rewards and incentives throughout the break.

As is often the case when big things topple and crash, it is often not a single factor but a slew of circumstances, triggers, and occurrences within a wider world that brings everything down in the end. 

Summary

There were a number of factors that all together culminated in the collapse of the crypto market after takin several hits from regulatory bodies, to investor fears getting out of control and the overall global economy.