Which is typically caused by a mix of technical, psychological, and macroeconomic factors. Here are the main reasons:
🧠 1. Profit-Taking by Whales and Retail Investors
• After a sharp rally, large holders (whales) and early investors often sell their positions to lock in profits, triggering a wave of selling.
• This selling pressure can cause panic among retail investors, accelerating the drop.
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📉 2. Overbought Market Conditions
• Technical indicators like RSI (Relative Strength Index) may show that assets are overbought.
• Traders anticipate a correction and start shorting or selling, leading to a quick drop.
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⚠️ 3. Leverage Liquidations
• Crypto markets often have high leverage. If prices fall even slightly, it can trigger automatic liquidations of long positions.
• These forced sell-offs amplify the crash dramatically within minutes or hours.
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📰 4. Negative News or Regulatory Announcements
• News such as government crackdowns, tax regulations, or lawsuits (e.g., SEC lawsuits) can rattle investor confidence.
• Sudden announcements cause panic-selling regardless of fundamentals.
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🌎 5. Macroeconomic Shocks
• Crypto is highly sensitive to interest rate changes, inflation data (like CPI reports), and geopolitical tensions.
• A hawkish Fed announcement or a global event can cause risk-off sentiment in all markets, including crypto.
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🔄 6. Market Manipulation
• In low-liquidity environments, some large players may manipulate price movements (known as pump-and-dump).
• Coordinated selling or spoofing can cause sudden drops that appear irrational.
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🧊 7. Sentiment Shift
• Fear spreads fast on social media (Twitter, Reddit), and emotions drive price more than fundamentals in crypto.
• When sentiment flips from bullish to bearish, it can cause a cascade effect.
🛡️ Example:
In April 2021, Bitcoin crashed from $64,000 to $30,000 within weeks due to:
• Elon Musk’s negative comments on BTC energy use
• China’s mining ban, Heavy leverage unwinding, Retail panic and algorithmic trading triggers