Here are the most common reasons that lead to declines in cryptocurrency prices:
1. Global market movements
Rising interest rates from central banks (like the US Federal Reserve) make investment in safe assets like the dollar more attractive than high-risk assets like cryptocurrencies.
A decline in global stocks can lead to a drop in cryptocurrencies, as markets are interconnected.
2. Government regulations and legislations
The issuance of new laws or tightening regulation on cryptocurrency trading in major countries (like the US or China) leads to investor fear and withdrawal from the market.
3. Panic selling
When prices drop rapidly, many investors start selling out of fear of further declines, causing a bigger drop.
4. Security breaches or platform bankruptcies
If a large platform like Binance or Coinbase experiences a cyber attack or halts withdrawals, it leads to a loss of confidence in the market.
The bankruptcy of platforms like FTX in 2022 significantly affected the entire market.
5. Rumors and negative news
Sometimes just a rumor or a tweet from an influential figure like Elon Musk can lead to significant market movements.
6. Whale movements
Large investors (whales) may sell huge amounts of cryptocurrencies all at once, leading to a price drop.
7. The natural market correction
After periods of strong upward movement, it is normal to have a temporary price correction to take profits before resuming the rise.
If you are following the cryptocurrency market, it is important:
1. Monitoring global and economic news.
2. Not making decisions based on emotion or fear alone.
3. Using risk management strategies.
