The sudden collapse of the cryptocurrency market can happen for multiple reasons, and is often the result of the interaction of several factors at once. Here are the main possible reasons:
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1. Sudden Negative News
Such as:
Regulatory decisions: such as imposing a ban on trading or mining cryptocurrencies in influential countries (like China or the United States).
Bankruptcies of major trading platforms: as happened with FTX in 2022.
Cyber attacks on wallets, exchanges, or DeFi protocols.
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2. Whale Movements
When large wallets (whales) sell massive amounts of coins, it may lead to panic in the market and a sharp decline in prices.
These movements are sometimes monitored automatically by traders or bots, which accelerates the rapid decline.
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3. Market Manipulation
The lack of strict oversight makes the crypto market susceptible to manipulation, such as:
Pump and Dump
Wash Trading
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4. Increase in interest rates from central banks
If a major central bank like the U.S. Federal Reserve (Fed) raises interest rates, investors may exit high-risk assets like cryptocurrencies and turn to bonds or the dollar.
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5. Panic Selling
Just a rumor or a natural correction may turn into a sharp collapse due to the fear of loss (FOMO/FUD).
The market is psychologically affected to a much greater extent compared to traditional markets.
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6. Technical or economic problems within the cryptocurrency networks themselves
Such as discovering security vulnerabilities, liquidity crises, or protocol failures (as happened with Terra/LUNA in 2022).
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7. Excessive Leverage
Many investors use leverage, and when prices drop slightly, their positions are automatically liquidated, leading to further declines.
