Your question is excellent, and indeed many people feel confused during a sudden sharp drop... Let me explain briefly and realistically:
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What is the reason for the sharp drop?
1. Liquidation of leveraged positions:
Many people trade futures using leverage. If the market moves against them, their positions get liquidated all at once, creating a sudden massive sell-off.
2. Stop-loss cascade:
When a certain level breaks, many stop-loss orders get triggered in succession, increasing the severity of the drop.
3. Sudden news or strong rumor:
For example: news about increased regulation, a sudden interest rate hike, actions from a government entity, or even a large sell-off from a wallet or exchange (like what happened before with FTX or Mt. Gox).
4. Whale manipulation:
During times of low liquidity (like on weekends or outside peak hours), whales can move the market with large sell orders to break support and then buy at a cheaper price.
