Crypto Market Crash: What Exactly Is It & Why Does It Occur?

Akinseloyin Emmanuel

• 7 min read
Crypto Market Crash: What Exactly Is It & Why Does It Occur?
Bitcoin Market Crash

A crypto market crash is one of the most dreaded events for every crypto investor. Cryptocurrency markets are known for their explosive gains and sharp declines. Every few years, headlines like "Crypto Market Crash Wipes Out Millions" resurface, leaving investors asking the same question: "Why is crypto crashing?"

A crypto market crash occurs when digital asset prices fall sharply over a short period, often driven by panic selling, negative news, or broader economic shifts. Unlike regular dips, crashes can erase 20–50% of market value within days or weeks, shaking investors' confidence.

In this article, we will explore what a crypto market crash is, the causes, historical examples, and practical strategies for investors.

What is a Crypto Crash?

A crypto crash is a sudden, significant drop in the value of cryptocurrencies across the market, often exceeding 30% in a short period. While the crypto market is known for its volatility, a crash goes beyond a normal price dip. It is marked by:

  • Sharp declines of 20%–50% or more within days or weeks.
  • Widespread impact across major coins like Bitcoin, Ethereum, and altcoins.
  • Panic selling triggers even further losses.

In simple terms, a crypto crash is a market collapse that occurs quickly, often triggered by fear and uncertainty.

What qualifies as a crash may vary, but experts point to a 20–30% drop in major cryptos like Bitcoin or Ethereum, which can trigger chain reactions across altcoins. For instance, if Bitcoin falls rapidly, the entire market often follows suit because BTC serves as a benchmark for other altcoins.

Examples of Past Major Crypto Crashes:

These crashes show that while crypto markets are high-risk with buoyant rewards, they're also prone to sudden, extreme downturns.

Key Reasons Why Crypto Crashes Happen

When the market turns red, investors often ask, "Why is crypto crashing?" The truth is, crypto crashes rarely occur from a single event; instead, they are usually caused by a mix of factors that trigger panic across the market. Here are the leading causes:

1. Market Speculation and Overleveraging

A significant driver of crypto crashes is speculative trading, especially when investors use high leverage, which amplifies gains but also losses. 

When prices dip, forced liquidations create a domino effect. In 2025, excessive borrowing against crypto assets has led to rapid crashes, as seen in recent volatility spikes. Another example is the many "meme coins" that spiked and then collapsed in 2021.

2. Regulatory News and Changes

Government announcements about new regulations, bans, or crackdowns can cause fear and panic in the market. For example, stricter rules on exchanges or bans in major economies like China have historically sent prices tumbling. 

In Nigeria, past restrictions on bank crypto transactions also triggered local panic, forcing traders to sell, which can often lead to sudden, steep price declines.

3. Exchange Hacks and Security Breaches

Crypto exchanges or projects experiencing hacks or security breaches can suffer massive losses. These events erode trust, triggering widespread market sell-offs. The 2025 Bybit incident, where $1.5 billion in ETH was stolen, contributed to market panic. Similarly, past events like the Mt. Gox collapse in 2014 wiped out billions.

4. Whale Sell-Off 

Large holders of cryptocurrencies, known as whales, can significantly impact the market by selling off large quantities of their holdings. When whales decide to liquidate positions, prices often drop quickly, triggering panic among smaller investors.

5. Global Economic Factors

Macroeconomic trends, such as interest rate hikes, inflation, geopolitical tensions, and economic slowdowns, influence crypto markets. When traditional assets offer higher returns or lower risk, investors may pull money out of crypto, creating selling pressure. The 2025 Fed's hawkish stance has mirrored this, linking crypto to the risks of traditional finance.

6. Market Sentiment and Fear

Crypto markets are highly sentiment-influenced. Negative news, fear of loss, or even seasonal trends can trigger panic selling, which spreads quickly in a market with limited liquidity.

The Difference Between a Crash and Market Volatility

In the cryptocurrency world, price fluctuations are normal, but it's important to distinguish between everyday market volatility and an actual market crash. Here's how to tell the difference:

Market Volatility

Market volatility refers to the frequent ups and downs in prices driven by regular trading activity, shifts in market sentiment, and external factors.

  • Normal in crypto, where prices swing up and down daily.
  • Movements of 5–10% in a day are common and not unusual.
  • Driven by trading activity, news, and speculation.
  • Example: Bitcoin moving from $26,000 to $28,000 within a week is volatility, not a crash.

Crypto Crash

A crypto crash, on the other hand, is a more severe and sudden event marked by a rapid price decline that significantly exceeds regular volatility thresholds —drops of 20% or more within a short timeframe.

  • A crash is steeper and faster than normal volatility.
  • Declines of 20%–50% across the market in a short time.
  • Triggered by panic selling, regulatory news, hacks, or global shocks.
  • Example: Bitcoin plunging from $60,000 to $30,000 in May 2021 was a crash.

Unlike normal volatility, in which prices recover quickly and trading continues, crashes often lead to prolonged bear markets or major corrections.

While volatility represents the inherent risk and opportunity in crypto, a crash signals a major market shock driven by specific factors.

Understanding this difference helps investors avoid panic during normal swings while remaining cautious during a real crash.

Historical Examples of Major Crypto Market Crashes

The cryptocurrency market has experienced several dramatic crashes that have shaped investor behaviour and market regulations. Here are some of the most significant crypto crashes that shaped the market:

1. 2018 Bear Market

  • What happened: After hitting nearly $20,000 in December 2017, Bitcoin lost over 80% of its value, dropping below $4,000 by the end of 2018.
  • Cause: Burst of the 2017 ICO bubble, over-speculation, and lack of regulation.
  • Impact: Billions in market value were erased, and many altcoins never recovered.

2. Terra/LUNA Collapse (May 2022)

  • What happened: The algorithmic stablecoin UST lost its peg to the US dollar, causing LUNA's price to collapse from $80+ to near zero in a matter of days.
  • Cause: Weak stablecoin design and a liquidity death spiral.
  • Impact: Over $40 billion wiped out, triggering one of the biggest confidence crises in crypto history.

3. FTX Exchange Collapse (November 2022)

  • What happened: One of the world's largest exchanges, FTX, went bankrupt after it was revealed that customer funds were misused.
  • Cause: Fraud, lack of transparency, and over-leveraging.
  • Impact: Over $30 billion lost in market cap, thousands of users locked out of their funds, and regulators worldwide cracked down harder on crypto.

4. 2020 COVID-19 Crash

  • What happened: In March 2020, Bitcoin fell from around $9,000 to under $5,000 in just two days.
  • Cause: Global panic-selling across all markets due to COVID-19 uncertainty.
  • Impact: Bitcoin rebounded later in 2020, starting the 2021 bull run.

These crashes highlight one thing: while crypto can deliver massive gains, it's also vulnerable to sudden, catastrophic downturns driven by speculation, weak structures, or global crises.

How Investors Can Respond to a Crypto Market Crash

A crypto crash can be challenging, especially when portfolios lose value overnight. However, panic-selling often makes things worse. Instead, here are innovative strategies to navigate a crypto crash:

1. Avoid Using Leverage

While leverage can amplify gains, it also magnifies losses, especially during crashes when forced liquidations can wipe out investments. Reducing or avoiding leverage helps limit risk exposure.

2. Practise Dollar-Cost Averaging (DCA)

Investing fixed amounts regularly, regardless of price, helps smooth out volatility and lowers the average purchase cost over time. This strategy reduces the risk of market timing.

3. Diversify Your Portfolio

Spreading investments across different cryptocurrencies, along with some stablecoins and traditional assets, can balance risks. Diversification reduces the impact of a crash in any single asset.

4. Hold Stablecoins for Safety and Opportunities

Allocating funds to stablecoins like USDT, USDC, and BUSD, which are backed by assets such as the US dollar, helps preserve capital during crashes.

Stablecoins also offer the flexibility to enter the market quickly when prices stabilise.

5. Maintain a Long-Term Perspective

Cryptocurrency markets are volatile, but many investors succeed by focusing on long-term growth rather than short-term losses. Patience during downturns can lead to gains when the market recovers.

6. Practice Risk Management

Define your investment goals and thresholds for buying or selling before a crash happens. Avoid investing money you can't afford to lose, and use stop-loss orders if trading actively. 

Conclusion on Crypto Market Crash

Crypto crashes can be challenging, but they are not new occurrences. Every downturn has also been a turning point for the industry, shaking out weak projects, pushing regulators to act, and forcing exchanges to improve security and transparency.

For investors, a crash is not just a loss but also a lesson. Those who stay disciplined, diversify, and focus on the long term often find themselves better positioned when the market recovers.

Whether the current downturn is temporary or prolonged, the important thing is, don't panic, stay informed, and always manage risk.

Frequently Asked Questions (FAQs) About Crypto Crash

Is Crypto Crashing right now?

Yes, as of November 2025, crypto markets are experiencing a downturn, with significant assets like Bitcoin and Ethereum trading well below their yearly highs.

Will Crypto Recover from This Crash?

History shows that crypto has bounced back after every major crash. While recovery timelines differ, long-term believers often view downturns as opportunities to buy at lower prices.

What causes a Crypto Market Crash?

Crypto crashes are usually triggered by factors like regulatory news, market manipulation, exchange collapses, macroeconomic uncertainty, or sudden liquidations from leveraged trading.

What should I do during a Crypto Crash?

Stay calm, avoid panic-selling, and review your portfolio. Diversify your assets, avoid over-leveraging, use stablecoins, and consider dollar-cost averaging if you believe in the market's long-term value.

Is Crypto still Safe to Invest in?

Crypto remains a high-risk investment. While blockchain technology has strong long-term potential, investors should never invest more than they can afford to lose and should diversify beyond crypto.