[November 2022, Updated] Reasons Why Bitcoin & Cryptos Are Crashing In 2022?

Recently, a major crypto crash in the market accelerated following the closure of Wall Street’s stock market. The selling appears to be self-perpetuating, spreading panic throughout the market. Altcoins are down significantly, with some falling more than 30%. You can observe crypto crashing as the declines in crypto giants such as Bitcoin and Ethereum are astonishing.

Current update says Bitcoin is down by 11% percent in the last 24 hours and a half to $35,611. Ethereum’s price has fallen 8.7%, while Solana has surprisingly shown upward movements.

This article talks about the reasons why is crypto crashing and also about Bitcoin crash.

Factors to Consider While Trading

There are a few factors to consider while trading short-term. One reason for crypto crashing is that liquidations are intensifying as investors liquidate their leveraged bets on crypto prices rising. Coinglass.com reports that $1.14 billion in crypto holdings have been liquidated in the last 24 hours, with $416 million of that total occurring in the last four hours. This is occurring throughout the sector, but the effect of crypto crashing is much on Ethereum with $113 million in liquidations in the previous four hours.

Gas expenses are increasing, particularly on the Ethereum blockchain resulting in more crypto crashing. Gas is the fee you pay validators to process transactions, and it increases in price as the blockchain becomes more congested.

At this time yesterday, the price of gas in Ethereum was 203.7 GWei, and it is currently skyrocketing beyond 550 GWei. At this hour of the day, gas fees are not uncommon to reach close to 100 GWei, indicating a high level of activity.

When was the Most Recent Cryptocurrency Crash?

In June 2021, the Chinese government launched a crackdown on significant crypto mining operations in Sichuan province and asked that Chinese banks and payment channels to discontinue supporting decentralized and anonymous crypto transactions.

This resulted in Bitcoin crash with a significant drop in values to below $30,000 following its meteoric rise.

Crypto crashing continues to fluctuate in price as other worldwide governments and regulators consider measures to rein in rising crypto activity, which is frequently ascribed to money laundering and criminality.

Following the Chinese government’s announcement, countries such as South Korea committed to combat the spread of cryptocurrency-based money laundering, while the Metropolitan Police said that it had successfully closed in on a massive UK cryptocurrency money-laundering scheme.

The Met seized a cryptocurrency operation worth £180 million in July, the largest cryptocurrency seizure in the UK to date. Since then, cryptocurrency trading platforms such as Binance have been under fire from regulators and governments throughout the world.

Bitcoin’s peak prices were halved in June due to crypto market crash and the coin struggled to break out of the low to mid $30k price range until Tesla CEO Elon Musk’s appearance at a big Bitcoin conference in July provided a much-needed lift.

Crypto Crashing in February 2022 Due To Fears Of War:

War is something no one wants, and whenever it’s mentioned riskier assets take a plunge, hence crypto prices are down due to fears of a war happening. However on the bright side if a war doesn’t happen we may just see a potential rally hence it may just be a good time to buy and hodl if you can handle the volatility of the crypto market.

Crypto Crashing due to what happened in Kazakhstan

The central Asian nation has been shook by violent skirmishes between demonstrators, police, and the army in recent days. The protests began in the country’s west over the weekend in response to a dramatic increase in petrol prices and soon spread throughout the country’s cities.

On January 19, 2022 the internet was cut down across the country. And, while the apparent goal was to impair demonstrators’ communications, the blackout’s consequences have stretched deeper.

Kazakhstan is a major player in the world of bitcoin. According to the Cambridge Centre for Alternative Finance, the country became the world’s second-largest centre for bitcoin mining last year, after China, a key hub, cracked down on crypto mining operations. According to Fortune, Kazakhstan accounted for 18 percent of global bitcoin mining in August.

The more miners on the network, the more computing power is required to create new bitcoin. If miners leave the network, the hash rate falls, theoretically making it easier for the surviving miners to create new coins.

According to data from mining business BTC.com, hash rate at major crypto mining pools – groups of miners in various places who collaborate to produce bitcoin – was down 14% from Tuesday to Thursday.

Bitcoin’s price also fell – a decrease in hash rate does not always result in a plunge in price. On Thursday, the cryptocurrency plummeted below $43,000, touching multi-month lows.

The incident demonstrated Kazakhstan’s importance in the bitcoin ecosystem.

Apart from economics, bitcoin’s harmful environmental impact has been a persistent concern. Blockchain-based currencies require a significant amount of energy, the majority of which is sourced from fossil fuels. And, more particularly, the strength of bitcoin is cause for anxiety in Kazakhstan.

Coal is the primary source of energy in the region. Kazakhstan’s crypto mining farms are primarily fueled by ageing coal plants, which — along with coalmines and entire cities developed around them – present a stumbling block to authorities seeking to decarbonize the economy. Due to the inefficiency and high carbon content of older plants, they emit a disproportionate quantity of pollution.

Kazakhstan’s emissions per energy unit, according to the International Energy Agency, are greater than China’s used to be. According to the EPA, China’s coal emits approximately 1,000g of CO2 per kilowatt hour, whereas Kazakhstan’s coal emits close to 1,500g.

The Kazakh government announced last year that it will begin cracking down on unregistered “grey” miners, who it estimates consume twice as much electricity as “white” or formally registered miners.

Kazakhstan’s energy ministry stated last year that “grey” mining may consume up to 1.2GW of electricity, which, when combined with the 600MW generated by “white” miners, equals nearly 8% of Kazakhstan’s overall generation capacity.

Crypto Crashing: Cryptocurrency Ban in Russian

Russia’s central bank has proposed a total ban on cryptocurrencies resulting in crypto crashing. Cryptocurrency trade, mining, and usage are all prohibited in the country under the proposed prohibition. Once implemented, the law will permit just the ownership of cryptocurrencies in Russia and will prohibit all other cryptocurrency-related activities.

In a new consultation paper, the Bank of Russia published the proposal. The study emphasizes the dangers that the volatile nature of cryptocurrencies poses to the country’s financial stability and well-being. Additionally, the research highlights the widespread use of cryptocurrencies in illicit activities.

According to a report by Russia’s central bank, the rapid growth of cryptocurrencies is mostly due to speculative demand. This is resulting in the possibility of a market bubble and exhibits hallmarks of a financial pyramid. If or when they lose value, the impact on the country’s investors might be enormous.

Russia legalized cryptocurrencies in 2020, but quickly prohibited their usage in transactions leading to crypto crashing. The Bank of Russia’s new proposal seeks to impose additional limits on crypto in the nation. A discernible influence will almost certainly be detected on Russia’s crypto markets.

Additionally, the study discusses the issue created by cryptocurrency mining. Due to the fact that mining cryptocurrencies needs enormous computers with a lot of computing power, its energy consumption puts a strain on a region’s energy grid. Numerous countries are currently tackling this issue, and Russia’s central bank appears to have taken a position.

Russia is the world’s third-largest bitcoin mining region. With the associated energy needs placing an undue strain on the country’s energy resources, the Bank of Russia indicated that “the prohibition of cryptocurrency mining in Russia may be the best approach” to address this issue.

Threats Due to Crypto Crashing

According to the Russian central bank, the crypto market crash poses a threat to Russian ordinary investors. It cautioned against few dangers.

  • As a result of crypto crashing, individuals face the danger of losing their money or becoming debtors in the case of leveraged trading. This is also due to the volatility and prevalence of fraud in crypto trading.
  • Cryptocurrency inhibits the central bank’s monetary policy sovereignty.
  • Due to cryptocurrency crash, investors may remove savings from the Russian financial sector, so reducing the sector’s capacity to support economic growth.
  • Cryptocurrencies generate an atmosphere conducive to criminal activity (such as money laundering, drug trafficking, terrorist financing, extortion, and bribery), posing a threat to the global anti-money laundering and counter-terrorist financing systems.

The Russian Central Bank’s Position on CBDCs

The study noted that numerous central banks worldwide are investing heavily in the development of speedier payment systems in order to achieve immediate settlements. It noted that in this context, central bank digital currencies (CBDCs) are being developed. The consultation paper noted that it is a new payment infrastructure that will enable “individuals, corporations, and the government to perform instantaneous transactions with minimum expenses.”

Additionally, it stated that CBDCs might provide similar benefits to cryptocurrencies while preventing money laundering and illegal activity.

The Crackdown of United Kingdom’s Government on Crypto

The UK government announced on January 18, 2022 that it will tighten regulation of cryptocurrency advertising and crack down on what it calls deceptive marketing following a record number of crypto-related campaigns in recent months in London.

On Tuesday, the government issued proposals for legislation to address deceptive crypto promotion.

Additionally, the government has proposed that crypto advertisements be subject to the same rules and regulations as traditional financial advertising in order to ensure that these advertisements are “fair and clear.”

“Crypto assets have the potential to create exciting new opportunities for people to transact and invest – but it is critical that customers are not misled by false claims,” Rishi Sunak, British finance minister said in a statement.

According to the Guardian, London saw a record number of crypto-related advertisements in 2021, with the city’s public transportation system displaying around 40,000 advertisements from 13 different companies between April and September.

Around 2.3 million people in the UK have invested in crypto, but “research indicates that awareness of what crypto is dwindling, implying that some consumers may not completely comprehend what they are purchasing,” the government website stated.

According to the government’s plan, crypto would be subject to the Financial Conduct Authority’s (FCA) guidelines, which means it will be held to the same standards as other financial assets, like as equities.

The FCA is the UK’s financial regulatory authority, tasked with the responsibility of supervising financial firms and products. Cryptocurrency is still unregulated in the UK.

Crypto would be subject to existing financial regulatory legislation under the proposed standards. Firms intending to promote crypto would be need to obtain authorization from regulators such as the FCA. According to the government, promotions must be “fair, unambiguous, and not misleading.” All these measures can control crypto crashing.

The government expects to introduce the measures six months after they are finished.

Issue of Own Currency by Federal Government of USA

In view of crypto crashing, the Federal Reserve took the first step towards considering the possibility of creating a central bank digital currency, when it released a paper assessing the idea’s possible costs and benefits and inviting public opinion.

The Federal Reserve avoided taking sides in a long-awaited report, outlining arguments for and against digital currencies and posing questions that will influence the discussion.

A digital retail currency issued by a central bank would essentially be electronic cash. While customers already use digital money when they swipe a credit card or shop online, such money is guaranteed by the banking sector. A Fed version, like a US dollar bill, would be backed by America’s central bank.

According to the Fed’s report, a prospective bank currency may be constructed in such a way that it would cause minimal disruption to the financial sector which in turn will be a solution for crypto crashing.

May 2022, Update:

The crypto market has got cold feet due to the recent fed rate hikes, and if fed continues with these rates hikes then expect possibly more downward movement for btc and other cryptos. Two words Recession and Inflation fears have spooked the crypto market, and it’s quiet possible to see some more downfall before the market stabilizes, and it goes without saying possibly a good time to buy on the dips.

November 2022, Update:

The latest crash is happening due to the insolvency rumors surrounding FTX, and what added to the crash was Binance who decided first to bail out FTX only later to back out. At this stage it’s a free fall trade very carefully during such high volatility.

Final Words

The difficulty with the current crypto crashing situation is that we have no idea when the selling will cease. When leverage and panic selling combine, the market can suddenly plunge, even more so in the 24-hour cryptocurrency market leading to more crypto crashing.

One thing to consider in crypto crashing causes is that some market makers who buy while others sell, may disappear over the weekend. We don’t believe it’s coincidental that the quick selling began on Friday afternoon, shortly after the stock market closed for the weekend.

Volatility is inherent in cryptocurrencies, but it is currently working against investors, rather than for them, as it has for the better part of the last two years. Crypto crashing might continue until the market establishes a floor, which may be some time away. While there is considerable innovation occurring in cryptocurrencies over the long run, this does not mean that this sell-off will not be painful for a large number of investors.

At Solutiontales we make it easy to understand the throes of cryptocurrencies, but our words should not be taken as a financial advice. Remember, a wise investor can make money in a bull or bear market when given the right data.

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