why did crypto crash

The sudden crash of cryptocurrency prices in early 2018 is one of the most significant events in the short history of the asset class. There were multiple factors at play, including fundamental concerns about the technology and market forces that caused investors to re-evaluate their expectations of cryptocurrencies. In this essay, I will break down the various factors that caused the crash and why they had such a significant impact.

One of the fundamental reasons for the cryptocurrency crash can be traced to a lack of regulatory clarity. The market has lacked strong oversight from regulators and gold-standard regulatory enforcement. Many of the jurisdictions in which the exchanges operate lack the necessary safeguards and offer investors little recourse should the exchanges go bankrupt or face criminal prosecution. Without regulatory oversight of trading practices, investors and speculators have been more prone to price manipulation and insider trading. This lack of oversight creates a form of moral hazard and makes it difficult to trust the market.

Another fundamental issue contributing to the crash is the lack of infrastructure development. Despite the skyrocketing prices of cryptocurrencies, the actual development of the underlying technology has not been able to keep pace. Blockchain technology is still in its infancy and the lack of scalability and interoperability are major issues that need to be addressed before cryptocurrency can become a serious asset class. Additionally, the development of decentralized applications (Dapps) has been hampered by high transaction fees and long confirmation times.

The final and perhaps most important factor in the crypto crash was the influx of inexperienced and speculative investors. The soaring prices of cryptocurrencies, combined with the rise of “initial coin offerings” (ICOs) and easy access to cryptocurrency trading through exchanges, attracted a large number of inexperienced investors, many of whom had little to no understanding of the underlying technology and were simply looking for quick profits. When the market started to fall and prices tumbled, many of these investors panicked and sold off their positions, exacerbating the crash.

In conclusion, the cryptocurrency crash of early 2018 was the direct result of a combination of factors, all of which were either fundamental or market-driven. Regulatory uncertainty, lack of infrastructure development, and speculative, inexperienced investors all played a role in creating an environment where a crash was more likely. Although cryptocurrencies have recovered since the crash and are still widely traded worldwide, it is still important to understand the root causes of the crash in order to ensure that similar events are avoided in the future.