What Key Factors Did Influence The Present Crypto Market Crash?

• The cryptocurrency market is down again due to several factors. The current crypto market sits at around 1.96 trillion.

• Several events around the globe, including China’s crackdown on miners, Ripple fighting with SEC, tweets from billionaires and crypto enthusiasts, riots in Kazakhstan, have affected the crypto market and created fear in regular crypto investors.

• Key factors affecting the crypto market include correction, social influence, put/call ratio, transaction volume, fear of COVID-19 Omicron variant, and a lot more.

Almost two weeks have passed since 2022 started, and the cryptocurrency market continues to stay down. Despite the hype of amazing cryptocurrency market performance at the end of 2021, no significant developments or growth has been observed to date. Almost every individual related to cryptocurrencies understands how volatile the market is, and such events are bound to happen, although every dip in the crypto market has some reasons behind it. However, before understanding possible reasons, let’s take a look at the current scenario of the crypto market.

The cryptocurrency market is down again, by 1.08% in the past 24 hours, currently sitting at $1.96 trillion (at the time of writing). Bitcoin is the major cryptocurrency that has been down by 8.75% over the past week, however, it is up by 0.45% in the last 24 hours and is currently trading at $42,164.32 (at the time of writing). Bitcoin being down in the last week, the altcoins simultaneously dropped, with Ethereum dropping by 16.84%, Solana by 18.77%, and Avax by 18.78%. However, the stablecoins have managed to stay tight, with the highest drop being 0.15%.

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Here is a list of the top 14 tokens with their statistics and drop percentage over the past 24 hours and 7 days simultaneously.

Why is the Crypto Market Crashing?

The cryptocurrency market is the most volatile market all around the globe. However, volatility alone does not affect the market to fall or go bullish. There are numerous factors and indicators responsible for any change in the market. Not only do factors from the crypto ecosystem affect the market, but several real-world ongoing issues also influence the market in many ways. There has been a sort of chaos around cryptocurrencies lately. Numerous events related to crypto have occurred in the past few months, majorly in the past few weeks. All the events somehow influence the market, one can say by creating a butterfly effect. 

Cryptocurrencies have been a hot topic lately, and Bitcoin mining has been an issue for most countries worldwide. From Tesla’s announcements to ripple and SEC lawsuits and riots in Kazakhstan, almost every event has affected the crypto market somehow. However, we wouldn’t discuss every event in detail, but we’ll look at key factors emerging from all events.

Possible Reasons Behind The Dip

• Reversions – History has proven that with bullish movements comes reversions and corrections simultaneously. When a cryptocurrency goes up, it generally comes down a bit which could be referred to as correction or reversion. These reversions are generally considered healthy unless the drop is huge and continuous to drop further. For instance, if Bitcoin goes up by 10%, then dropping 5% or so is good, or the drop would come all together and might even result in a crash. The current situation with the crypto market could be considered a possible correction because it has grown by 176% over 2021.

• Rotation – It is an investment concept, according to which cycles occur when currencies travel from retail hands to institutional hands, which mainly happens after a bullish or bearish movement. The CEO of hedge fund Hedonova, Alexander Cavendish, also believes that the current situation is just a rotation and the market will be back on track soon.

• Social Influences – The crypto community members stay quite active on social media platforms for announcements of various projects, market manipulation tweets, discussions, and predictions. Therefore the market is indirectly affected by social activities. However, in this scenario, there is a tiny hype going around over social media, where people have tweeted stuff like crypto is over. This might slightly influence the crypto market, resulting in crypto investors selling their holdings and much more. 

      Also, Twitter’s CFO recently said that investing in crypto does not make any at the moment. This might, however, not have any direct effect on the current dip but might be a factor in the butterfly effect. Similarly, tweets from Elon Musk, the founder of Tesla, that are majorly related to Dogecoin do influence its market prices. Jack Dorsey, the former CEO of Twitter, also makes numerous tweets that influence the market, however, he is a great fan of Bitcoin.

• Bond Yields & Tampering – Another possible factor for cryptocurrency market dip. Recently, on 10 January, the Nasdaq stock market tumbled by 2% due to a panic caused by some predictions, however, it recovered by 4% afterward. This caused a slight panic in the crypto community as well, which resulted in small sell-offs, pushing the market further down. The predictions here seem like tampering, however, it might not have been intentional.

• Fear & Greed Index With Consistent Sell Offs – The fear and greed index shows that the index has constantly pointed towards fear from the beginning of this year. Over the course of the past three months, fear has constantly grown among crypto investors going away from greed, going as extreme as 10, and greed being highest at 84. With this fear comes sell-offs, and observing the past activities, continuous sell-offs have been observed, resulting in the current dip. Below is the chart of fear and greed index in three months, a constant increase in fear can be observed clearly.

• Put/Call Ratio – Put/Call Ratio is a part of options trading where an investor bets on predictions whether a cryptocurrency would go up or down from a specific point. Cryptocurrency whales are the ones who are known to affect or control the market, however, at present, cryptocurrency whales are not doing anything, and the market is being influenced by increased activity in options trading. The current dip in the market might mean that there would have been some major puts or calls in the market.

• Transaction Volume – One of the most important factors which many investors observe to make investment decisions. Despite the popularity cryptocurrencies have gained, the transaction volume has grown just by 30%, being 5.73 billion in 2018, 3.59 billion in 2020, 14.64 billion in 2021, and 6.31 billion being the highest in 2022 to date. Over the past year, when transaction volume reached an all-time high of about 14.64 billion, the volume has constantly been dropping.

Conclusion

All the factors mentioned above play a role in influencing the crypto market. Another significant impact the crypto market is facing from the COVID-19 Omicron variant. The pandemic hasn’t ended yet, and it has forced individuals to fear investing their savings in crypto and drift away for a while. The biggest of all is the fear and greed index factor. The increasing voice for regulating the crypto industry, constant tweets, and fear of the unknown have led investors to step away from the market. The introduction of regulation, countries banning cryptocurrencies, Ripple fighting with the SEC, riots in Kazakhstan, and many more events have and will continue to affect markets. However, believers of cryptocurrency continue to get involved in trading. Yet, the future remains unknown. 

Kartik Dhankani