Joe Brooks, the famed songwriter, once said, “You don’t learn to fly if you’re not prepared to crash.” It is precisely the line that Bitcoin, the largest Crypto Player by market cap, has sworn to live by. But then, the crypto market isn’t only about the plummeting crashes but also about the standard corrective phases and bouts of ecstasy. Provided you have had the opportunity to experience the latter.
- A crypto crash differs significantly from a corrective phase. And…
- A crypto crash is caused primarily due to a global event, including the likes of …
- The latest crypto crash or the sharp two-month long dip is due to feds signaling increased lending interest rates and…
- Crypto correction can be preempted using technical indicators like…
- A crypto correction is easier to identify than a crash as it follows a set pattern involving…
- HODLing is the only strategy to manage crashes and corrections with ease.
Whether you are a new Crypto or a seasoned trader, panic in the market could affect you all the same. However, the experience can help you handle the depleting phases better. Regardless of your crypto expertise, you may want to be aware of two saddening yet essential terms— crash and correction.
While both signify capital erosion and a bloodied portfolio, these terminologies aren’t interchangeable. . In fact, contrary to popular opinion, a crypto crash is nothing like a crypto correction. A crash signifies a rapid drop in the trading price of any crypto asset, whereas a crypto correction is more like a pullback or retracement that stalls an uptrend.
Fact Check: Pullback or retracement is when an asset corrects by hitting specific support levels while trending upwards.
Both these terms are often thrown around as part of common crypto lingo, and it is important to clear out the differences, once and for all.
One of the mentioned events gives you a better opportunity to buy the dip, if you may. But we will leave the guessing to you and shall come to that at the end of this discussion.
What is a Crypto Crash?
Well, an accident or even a rude awakening doesn’t show up with prior warnings! And that is precisely what a crypto market crash is like. From a more quantifiable perspective, a crypto crash is an event when the global crypto market drops more than 10% within a few hours or a day. And while this is the bare minimum crash qualification, an over 10% drop in a day is hardly restricted to that. This statement means that in most cases, a crash continues to affect even when the market has lost more than 10%.
For those who have no idea how deep cuts crypto crashes can inflict, it is advisable to revisit the 10th of April 2013 when Bitcoin, one of the key crypto players, noticeably shed over 70% in a 24-hour time frame.
And if 2013 seems like an ancient timeline, you can always refer to the 40% drop the market experienced during ‘Black Thursday,’ i.e., on the 12th of March 2020.
The Major Crypto Crash Timeline in Detail
Now that we are discussing the crypto crash, it is appropriate to talk about a few cornerstone events that changed our perception of the market.
Event 1: 2013 and the Big Fall
Bitcoin plunged in April and took the market down with it. If we are to summarize the crash in terms of ferocity, BTC eroded close to 70% within a month, dropping down to $50 from the highs of $259. Convert BTC to INR at the best rate here.
Reason for the crash: People liquidated holdings aggressively and took out the money from the crypto space.
Post-Crash Move: Here comes the interesting part. Despite dropping to 50-odd dollars by May 2013, BTC regained lost ground and moved up by over 2000% to reach $1,163 by November 2013.
Event 2: 2013 threw another Punch
Come December, and the market acted up all over again. China banned Bitcoin all of a sudden, throwing the market in a tizzy. Expectedly, the market dropped by almost 50%, led by BTC that went all the way down to $150.
Reason for the Crash: China’s uncalled stance towards Crypto.
Post-Crash Move: The crash was a sustained one, and it took BTC some time to get its wits back. However, by mid-2017, BTC had moved up to a whopping $2700.
Event 3: 2017-2019- The ‘Phased’ Crash
It all started in December 2017. BTC was steady at $20,000, and an up move was expected. Unfortunately, things quickly went out of hand as the steady drop resulted in BTC shedding almost 84% of its gains. The push quickly turned into a shove as BTC bottomed out close to $3000.
Source: Trading View
Reason for the Crash: Major Crypto hacks across Korea and Japan.
Post-Crash Move: By December 2019, BTC was up by almost 800% compared to the lows it touched in December 2019. The market responded positively, and we did see several tokens reaching all-time highs.
Event 4: 2021- Going, Going, Gone
Bitcoin was trading at $65000 in April 2021. However, within a month, it plummeted by 60%, taking the crypto market down with it. A loss of 1 Trillion was reported as BTC touched new lows of $31,000.
Source: Trading View
Reason for the Crash: A cryptic tweet from Elon Musk.
Post-Crash Move: BTC regained its lost valuation and moved up to $69,000 by November 2021. And the 120% gain even resulted in the famed 3 Trillion market cap.
Event 5: 2022: Still Crashing but with Hope
Despite peaking in November, the crypto market didn’t have it easy in 2022. While it started showing ominous signs in December 2021, the steepest fall was experienced a few days back when BTC touched $33000 levels. That’s close to a 60% drop.
Source: Trading View
Reason for the Crash: Talks of Russia banning Crypto, increased equity-crypto correlation, and massive liquidation.
And while we haven’t yet seen a post-crash up move, past events do inspire confidence. Do keep checking our market updates to see how the crypto market and top assets stand amid the chaos.
Why does the Crypto Market Crash?
It is generally hard to ‘Predict’ a crypto market crash, but here are some of the reasons that have snowballed a few over the years:
Note: We shall be mentioning Bitcoin in several places as its movement is primarily analogous to the bigger crypto market, owing to the close to 40% market share.
- In 2013, the US FinCEN or (Financial Enforcement Network) came down hard on Bitfloor, a crypto exchange, by shutting it down and coercing other exchanges to get listed as money transmitters.
- Despite 2017 being a landmark year for the crypto market, with Bitcoin rallying up to almost $20,000, the palace came down crashing on the 27th of December, courtesy of a major sell-off.
- Coronavirus threats led to a 50% drop in March 2020. Bitcoin erased most of its gains to plummet as the way to $4000 by the end of the month.
- The most recent debacle took place in May 2021 when Elon Musk, once again, made a condescending statement regarding BTC’s payment stead regarding Tesla purchases.
And while the current capital erosion seems mellowed down due to its blunt nature, BTC dropped from the highs of $69,000 in November to under $34,000 a few days back. And this massive drop was a result of prevalent panic in the global market, talks regarding the Fed’s interest rate hikes, and quick sell-offs to liquidate most leveraged positions.
How to Determine a Crypto Crash?
Now that’s a million-dollar question right there. Even though it is close to impossible to determine when the crypto market crashes or when specific assets suddenly erode gains, some technical aspects and fundamental pointers might help you see the ‘rude awakening’ from a distance.
- Although it’s speculative, a pattern breakout on the lower side might hint at a sharp dip of sorts.
- A dip can be a mere correction (which we will discuss soon), it is often followed by news related to bans, regulations, and capital restrictions.
- Random tweets used by influential people to manipulate the value of specific crypto assets.
- Massive drop in prices of BTC and ETH, two of the largest crypto players, which might lead to a crypto crash.
If the market is spiraling downwards, it is better to hold your horses and watch from the sidelines.
What is a Crypto Correction?
While Von Goethe quotes that ‘Correction does much, but encouragement does more,’ any correction synonymous to the crypto space is itself a sign of encouragement, in most cases.
Disclaimer: Statements can be discretionary and need not be followed to the letter.
A crypto market correction is a dip, pullback, or a gradual decline where the market value drops by 10 to even 15 per cent over the course of a week or a month. Since the timeframe isn’t a matter of relevance here, a correction can also be defined as consolidation, depending on how you would want to perceive it.
For the uninitiated, a crypto market correction is often influenced by several minor events, minimally deprecatory tweets, and wavering global sentiments. However, unlike a crash, a correction can be proactively predicted if you know your way around the technical indicators.
How to Determine a Correction?
Preempting a crypto correction might be possible if you understand crypto technical analysis and general global crypto market sentiments. Here are the pointers that can therefore help you get ahead of any market correction if followed and ascertained correctly:
- Before jumping into the technicals, it is important to follow up with the ‘Fear & Greed’ index. As a metric, a high F&G signifies market greed and a landslide waiting to happen.
- If you have a technical bend of mind, overbought RSI, death crossover, and MACD dropping below the zero line are some tested metrics to preempt correction.
Fact Check: A death crossover happens when the smaller period MA line crosses below the higher period MA line. MA here stands for moving average.
How to Differentiate a Crash from Market Correction?
Now, this is a simpler question. First of all, a crash announces itself. In most cases, it doesn’t offer you the time to pull your punches and reach the shores, especially if you are a trader who enters and exits assets with a timeframe in mind.
Unlike a correction, a crash cuts way deeper and cannot usually be predicted using technical metrics. Also, a crash is more of hype or sentiment-driven phenomenon.
A crypto correction is a phenomenon backed by several technical indicators and often has a solid base to it. It even gives you ample time to bounce back, provided you are adequately proactive. And if you look at the bigger picture, lower trading volume is one of the primary reasons for a market correction, where the market consolidates, sheds some gains, or moves sideways over time.
While a crash is often random and sudden, a crypto correction follows a standard bull-bear cycle. As per the cycle, the market slides into a corrective phase when the bulls tire out after buying incessantly. At this point, only the bears show activity, courtesy of selling, whereas the bulls act as HODLers.
Not to mention, a correction is healthy for any market, let alone the crypto space.
Investor Outlook and Ways to Stay Safe?
Be it a crypto crash or a correction; it is always scary for traders and investors. Even though you can speculate as much as you want, the existing volatility in the crypto space doesn’t always allow you to follow a set trading or even an investing pattern that keeps you safe. Buy Bitcoin at the best rate.
Still, here are some of the pointers that you can keep in mind to be able to scale beyond any kind of correction or even an unexpected crash:
- Invest only what you can afford to lose or keep locked for a given period in case something displeasing comes to light.
- Be financially vigilant and refrain from trades that promise a lot.
- While charts are fun to read, do not consider them as the holy grail, and do your research before proceeding.
- If you want to free some cash and are unsure about where the market might go from here, it is an excellent approach to book profits, however meager they are.
- HODLing trumps Investing, especially in a beaten-down market
- Do not place trades based on social media interactions.
Did you hear BTD (Buy the Dip) as the newest crypto slang? While this term is popular, a faulty implementation can get you REKT (wrecked). Unlike traditional money or the stock market, the crypto space is replete with possibilities and volatility. Therefore, it is prudent to keep one’s eyes open for a crash and at least a correction.
Above all, if keeping track of the global events, market movements, and technical factors seems like a lot of hard work, investors often ‘HODL’ promising assets. In simpler terms, innovation outwits any crash or correction in the long run, and if you are confident about some crypto assets after researching, it is better not to get perturbed by the sharp and shallow dips.
And if you still feel confident enough to check a few crypto assets with potential, download the CoinSwitch app right away to get started.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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