Crypto Crash Explained

Why is Crypto Down? Top Reasons Explained

First, we need to know why they are down. Due to the unsavory perception several people have of crypto, and probably our insecurities about it, many people just assume the crash is because crypto was a bad idea all along. A venture bound to crash.

However, nothing could be further from the truth. The fact that crypto is being affected along with other markets should speak volumes. Here is a closer, factual look at what is happening with crypto right now.

1. Crypto Winter/Technical Correction

The first and most important reason is the current cryptocurrency cycle.

Every economic market comprises natural cycles that affect the price of commodities within the said market. These cycles are defined by differences in prices and hence varying economic opportunities and risk. The cryptocurrency market has similar cycles and right now, we are experiencing one that is lowering the prices of crypto.

In crypto markets, the cycle consists of four distinct phases: the accumulation phase, the markup phase, the distribution phase, and the markdown phase.

Market sentiment is dominated by disbelief and uncertainty. No clear trends can be seen so people are not yet sure whether or not to re-enter the market. The price of the coin could continue on a downward trend or rise. However, the accumulation phase is generally considered the end of the downward trend.

The markup phase, also known as the bull market phase, occurs when the market climbs higher in price at a rising rate. Because coin prices are growing, market sentiment is driven by optimism and enthusiasm. As a result, there is an increase in trade volume.

This is followed by the distribution phase, in which the market's buyers and sellers are in equilibrium. There are market participants who continue to look to buy, believing that the bull market is still at its peak. Then there are the cautious sellers, who want to lock in their profits while the market is still safe.

Finally, we have the markdown phase where the prices begin to drop. This phase is currently what we are experiencing, and is also known as a crypto winter. During this winter, prospects will seem abysmal but it’s never all doom and gloom.

This lack of bullish investors also allows technical corrections to happen. A correction usually looks like a drastic 10% drop in the price of a coin that happens over 7-10 days. It is important to note that the drop also has to be less than 20%. These corrections are excellent for the market because overbought indicators can reset their values, among other adjustments.

Each crypto market cycle lasts for around four years, but can also last for only a few months. The length and type of cycles experienced in a crypto market cycle are dictated by the correlation a coin has with Bitcoin, and several, often unpredictable socio-economic pressures.

2. Cheap Money Time is Over

The FED (Federal Reserve System) interest rates have recently been hiked. Although you would expect the FED to affect stock more, we must remember that the stock and cryptocurrency markets have always been related. So it makes sense that FED policies will affect the price of crypto.

This hike is intended to try and control the out-of-control inflation we have been seeing in global markets. So, as investors navigate the uncertain economic waters, several markets are struggling. Crypto included.

The first round of FED meetings was held in March of 2023, through June and July. Bitcoin saw a massive 10% drop. The drops in July were less severe, but as we can see, FED policies affect crypto prices.

As long as inflation and other economic issues plague the global markets, the FED will have to take action. So we should prepare to see these trends for a long time to come.

3. Strong Adoption by Mainstream Institutions

Before, cryptocurrency was a niche interest. Many prominent investors and moguls advised against the currency. To this day, many people still believe it is nothing more than a scam.

But over the past few years, major industry movers have begun to acknowledge the power that crypto holds. Many payment platforms have crypto options. You can find more retail platforms that accept crypto than ever before. Many major companies are also investing in crypto, as well as encouraging their customers and shareholders to try it. This has led to increasing demand for big capital, positively impacting cryptocurrencies.

However, this mainstream adoption of Bitcoin has made it highly susceptible to fluctuations in the SPX. As we mentioned with the FED, crypto, and stocks have always been connected, but now, even more so. The inflation and socio-economic issues affecting global markets are affecting the stocks and are now going to affect crypto on a larger scale.

Will Crypto Go Back Up? Expert Opinions

Do experts believe that crypto will go back up as assumed?

Oleg Giberstein, the co-founder of automated crypto trading platform Coinrule, believes that the crash could continue for the next two years. The crypto market is simply facing the same issues that other markets are facing. Inflation in the developed world and the European conflict remain major contributing factors.

He also believes that during these two years, the prices will continue to plummet. Economic strife will continue and much could be lost before we start to see anything get better.

Most experts reiterate the same sentiments. Some are more dire than others. But one recurring theme is that prices will get better, but the market could look entirely different from what we have ever known it to be.

What is the Best Crypto to Buy now?

The next big question we need to ask ourselves is what we should be doing in this situation.

Generally, buying crypto during a dip is ideal because the prices are low and will eventually rise. But of course, it’s not that simple. As we mentioned before, the dip in prices may continue for a few months to a few years. During this period the price of the coins will continue to fall.

Although you could consider waiting it out, it’s often too risky because the prices could go so low that your initial investment is lost. You would eventually have to add more money to your investment.

That being said, there are some crypto coins you can consider buying during this time. You must remember to only risk what you will be comfortable losing. Check out our table showing the prices of the safest coins to try out today.