Cryptocurrencies are all the rage right now. Everyone is talking about them, and many people have invested in them. However, cryptocurrencies are also incredibly volatile and can crash just as quickly as they rise in value. So why do cryptos crash, and what can you do to prevent it from happening? In this blog post by Timothy Enneking, we’ll take a look at some of the reasons why cryptos crash and discuss how you can protect your investments.
Timothy Enneking’s Guide to Why Crypto Crashes
Lack of Liquidity in Crypto Markets
Cryptocurrencies have become increasingly popular in recent years, but they remain a volatile and risky investment.
One of the critical factors that can lead to a sudden drop in value is the lack of liquidity. When there are few buyers and sellers in the market, finding someone willing to trade at the desired price can be difficult.
This can cause prices to drop quickly as people rush to sell their assets. According to Timothy Enneking, a lack of liquidity can make it difficult to withdraw money from exchanges, adding to the panic. In extreme cases, it can even lead to the collapse of exchanges.
Faced with these risks, many investors remain cautious about putting their money into cryptocurrencies.
Crypto Regulation
One of the most significant risks for investors is the possibility that governments will crack down on cryptocurrency trading.
This could happen in many ways, including imposing new taxes or banning exchanges. According to Timothy Enneking, another risk is that regulation will make it more difficult for people to buy and sell crypto, leading to lower demand and prices.
Even the rumor of stricter regulation can cause a sell-off, as we saw in 2018 when China announced plans to crack down on cryptocurrency trading.
Regulatory uncertainty is just one of the many risks associated with investing in cryptocurrency, but it’s something to keep an eye on.
Crypto Security Breaches
Over the past few years, several high-profile security breaches involving cryptocurrencies have occurred. In many cases, these breaches have resulted in the loss of millions of dollars worth of digital currency.
This is because exchanges usually hold large amounts of currency in centralized wallets, making them attractive targets for theft. Additionally, many people store their cryptocurrencies on personal wallets, which are also vulnerable to attack.
Once a hacker gains access to a personal wallet, they can often steal all the currency stored within it.
Finally, some breaches are the result of insider trading or fraud. For example, in 2018, the Coincheck exchange was breached, and over $500 million worth of NEM tokens were stolen.
The Coincheck hack was attributed to an insider who had access to the exchange’s private keys.
These keys were then used to transfer the tokens from the exchange’s wallets and into the hacker’s wallet. As a result, crypto security breaches can significantly impact the price of digital currencies.
Crypto Influencers Cause Volatility
Cryptocurrencies are notoriously volatile, and their prices can change rapidly in response to news and events.
One reason for this volatility is the influence of crypto influencers. Crypto influencers are individuals who have a large following on social media, and their opinions can have a significant impact on the price of cryptocurrencies.
For example, if a famous crypto influencer says that a particular coin is about to crash, many people may sell their holdings, causing the price to plummet.
Similarly, if an influencer says that a particular coin is undervalued, many people may buy it, causing the price to soar. According to Timothy Enneking, crypto influencers can cause significant swings in the prices of cryptocurrencies.
Timothy Enneking’s Final Thoughts
The cryptocurrency market is a volatile one. Prices can rise and fall quickly, and it can be hard to predict when these shifts will happen. In this post by Timothy Enneking, we’ve explored some of the reasons why cryptos crash. By understanding what causes prices to fall, you may be able to avoid losses in the future.