The prolonged and abrupt decline in the cryptocurrency market is usually the result of a combination of factors, both specific to the crypto sector and global macroeconomic influences.
The main reasons identified by market analyses often include:
1. Macroeconomic Factors and Global Risk Aversion:
Interest Rates and Inflation: The policies of central banks (especially the Federal Reserve of the USA) to combat inflation, such as raising interest rates, make money more expensive. This reduces global liquidity and causes investors to pull capital from assets considered high risk (such as cryptocurrencies) to seek safer investments (such as treasury bonds or fixed income).
Lower Liquidity: When there is less money "floating" in the global financial system, the cryptocurrency market, which operates 24/7 and is highly volatile, quickly feels the reduction in liquidity, which amplifies declines.
Correlation with Risk Markets: Cryptocurrencies, especially Bitcoin, often correlate more with risk assets like tech stocks (e.g., NASDAQ) than with safe-haven assets like gold. If these traditional markets fall, crypto often follows.
2. Factors Specific to the Crypto Market:
Taking Benefits and Correction: After periods of strong rises (bull markets or bull runs), it is natural for many investors to sell to secure their profits, which causes a price correction. Prolonged declines are often referred to as "Crypto Winter" or Crypto Crash.
Liquidation of Leveraged Positions: Many traders use loans (leverage) to invest. When the price falls, these operators are forced to sell their assets to cover debts (liquidation), which in turn pushes the price down further in a "snowball" effect.
Absence of New Investors (Retail): The lack of enthusiasm or the exhaustion of the "narratives" driving the entry of new retail users reduces demand. If general interest decreases, the price falls.
Specific Volatility: Cryptocurrencies, especially altcoins (coins other than Bitcoin), have very high volatility. In the face of fear (FUD - Fear, Uncertainty, and Doubt), the massive selling by retail and institutional investors accelerates.
Regulatory or Geopolitical Events: Announcements of new strict regulations, bans in certain countries, or geopolitical tensions can generate fear and uncertainty, causing massive sell-offs and abrupt declines.
Trust Issues and Fraud: The collapse of large companies or crypto projects (as happened with FTX or Luna in the past) can destroy confidence in the entire ecosystem, causing widespread panic and capital outflows from the market.