Kanalcoin.com – Every day, the value of cryptocurrencies falls. The largest cryptocurrency in the world bitcoin has dropped to $20,407 its lowest level since 18 months ago. Ethereum, the second-largest cryptocurrency, has also dropped more than 25% to $1,040 during that same time period.
According to CoinMarketCap, the cryptocurrency market has fallen from $1.02 trillion on Monday to $983.72 billion today – a decrease of 11%. Cryptocurrency markets have been experiencing a significant downturn over the past month, putting even long-term investors to the test.
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What is the reason for Crypto Crash?
The crypto crash has been exacerbated by the rising inflation rate, panic among investors and consumers, interest rate hikes, and a loss of confidence in virtual assets. Analysts say that the majority of factors affecting cryptocurrency prices are outside of individual companies’ control and have more to do with larger economic issues.
However, several elements are unique to cryptocurrency investments. Celsius Networks LLC suspended all transfers, swaps, and withdrawals due to market conditions that had become “extraordinary.” Investors are beginning to worry specifically about the volatility of cryptocurrencies.
1. Lack of liquidity in cryptocurrency markets
While there are many reasons for this, one of them is the lack of liquidity in cryptocurrency markets. This means that there are not enough buyers and sellers to create a balanced market in which prices will be more stable. People who invested in cryptocurrencies are now selling their coins, and this has driven down the price. This then creates a downward pressure on prices as more people want to sell their coins than buy them.
2. Regulation of Cryptocurrency
Many companies have shut down their operations in countries like China and South Korea due to government regulations on cryptocurrency exchanges. In the crypto realm, a hash rate is the number of algorithms that can be conducted per second. This interplay of supply and demand affects the price of coins. As prices fall, mining becomes less profitable and hash rates drop accordingly.
3. The prevalence of inflation
Many investors believe that Cryptocurrencies would be stable and serve as a hedge against inflation like gold and other metals. Unfortunately, cryptocurrencies have remained equally volatile over the previous six months as the value of the dollar declined as a result of an overheated economy.
The yearly US inflation rate has been fluctuating between 8.5% in March and 8.2% as of September 2022. People may have decided to sell assets such as stocks, bonds and cryptocurrency in order to preserve their wealth during the inflationary period.
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Can Cryptocurrency Survive a Crash?
The Library of Congress states that stock exchanges first emerged in the United States sometime after 1790. In contrast, the cryptocurrency market lacks this long history of ups and downs. Investors can feel secure knowing that the stock market has gone through numerous bear and bull markets throughout history—and is still thriving today. Winter precedes spring, but investors may have to wait for the market’s thaw. The most recent crisis and approaching recession could also make many reluctant cryptocurrency users.
How to Safeguard Your Assets?
Since you are aware of some of the primary causes of crypto crashes, what can you do to protect your investments from such a crash?
- Investing in a single asset leaves you vulnerable to risk. To reduce that risk, diversify by investing in multiple assets and other types of investments.
- Cryptocurrency prices can rise and fall rapidly, so it’s important to be aware of the volatility before investing.
- Dollar-cost averaging is investing a fixed amount at regular intervals in order to create an average price for the entire investment. Rather than making a lump-sum purchase at market highs, investments are regularly made to keep the average cost of your holdings low.
Conclusion
Cryptocurrencies have experienced significant market rallies and disastrous market downturns. As the market continues to grow and evolve, investors have to be ready for both drastic increases in value as well as sudden drops. In order to be successful in the world of cryptocurrency, it’s crucial to understand all possible factors that can contribute to a crash. When you are aware of the dangers inherent in market fluctuations, you can prepare for unexpected events and take advantage of opportunities.
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