6 Reasons of Crypto Crash

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Recent cryptocurrency downturns have wiped out huge amounts of wealth.

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Here are six reasons why cryptocurrencies crash:

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1. Crypto investors taking on too much leverage: 

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Crypto data firm CryptoQuant's BTC leverage ratio hit all-time highs in early January, meaning more investors were taking on risk in the crypto space. 

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Just like in traditional markets, crypto investors will often use debt to finance purchases of futures. 

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2. Lack of liquidity in cryptocurrency markets: 

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The biggest problem the crypto markets face when leveraged investors liquidate a large portion of their assets is the overall liquidity of the markets. 

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Unlike in the stock market, there aren't always a bunch of buyers waiting to snatch up unloaded coins.

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3. Cryptocurrency regulation: 

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When China banned crypto mining in June 2021, 

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"miners had to move to other jurisdictions that were more miner-friendly," Peters says.

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4. Crypto security breaches causing fear: 

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Blockchain and network security are other factors that could cause a crypto crash, Peters says. 

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This kind of crash would unfold similarly to regulatory disruptions from government actors.