If you are a new or even an old investor in crypto, you have definitely experienced days when the market is 'green' and makes you feel ecstatic, and other days when the market crashes and you feel like you've fallen from the sky! But the truth is, all these crashes do not happen suddenly out of nowhere; there are clear and recurring reasons, and we need to understand them well if we want to remain stable and continue our path with confidence.
In this article, we will discuss five main reasons that lead to market crashes, and how we can deal with them wisely.
1. Government decisions and regulatory news (Regulations)
The first and most important reason affecting the market is regulatory news from governments. For example, when a large country like the USA or China announces tightening regulations on crypto trading, or even bans certain platforms, people immediately get scared and start selling. This creates a massive sell-off wave and leads to significant price drops.
> A real example: China has announced multiple times a ban on mining or trading crypto, and each time the market crashed a day or two later.
2. Global economic changes (Macroeconomics)
The second reason is economic conditions in the world. When there is high inflation, or the American Federal Reserve raises interest rates, people withdraw their money from risky assets like crypto and move to traditional assets like the dollar or gold.
> Why is it important? Because crypto is still in its early stages and considered a high-risk asset, any economic pressure can scare investors away.
3. Whale movements
Whales are the big investors who own millions of dollars in cryptocurrencies. When one of them decides to sell large quantities, it directly affects the price and causes panic among others. Then everyone starts selling out of fear of loss.
> Tip: Follow sites like Whale Alert to know if there is significant movement on the blockchain.
4. Rumors and media panic (FUD)
Sometimes you see a tweet or a small news item about a platform or project crashing, and within seconds the market drops! The media and the community on social media have a very strong influence on directing the market, especially if FUD (Fear, Uncertainty, Doubt) spreads.
> Example: A rumor about a platform's bankruptcy can completely wipe out a coin's value in one day.
5. Breaches and technical issues (Hacks & Bugs)
When a platform is hacked or a DeFi protocol collapses, trust in the market is shaken, and collective selling occurs. One major hack can bring the entire market down.
> A real example: The FTX and Celsius hacks previously lost the market tens of billions.
How do you protect yourself?
Always trade on reliable and highly liquid platforms, like Binance.
Set a stop-loss to mitigate losses if the market suddenly drops.
Part of your portfolio should be Stablecoins so you can buy during a downturn.
Do not trade with your emotions; the market always goes up and down, what's important is to be patient.
> Register for a Binance account here:
https://accounts.binance.info/register?ref=480333793
