There are several reasons why crypto prices can cause panic, which are related to the nature of financial markets and human behavior. Here are the main causes:
1. High Volatility
Cryptocurrencies are known for their extreme volatility. A sudden drop can lead to massive losses in a short period of time, causing many investors to panic and sell in a hurry.
2. Domino Effect
When a large number of people sell at the same time, it increases the downward pressure on prices. This "mass panic" phenomenon can be self-reinforcing.
3. Speculative Investments
Many cryptocurrency investors are speculators looking for quick profits. When prices drop, they quickly exit to avoid losses, further fueling the price drop.
4. Loss of Confidence
Cryptocurrencies rely heavily on user confidence. A significant drop can be seen as a sign of market weakness or decline, which scares investors away.
5. Leverage
Many investors use financial tools like leverage to maximize their profits. A price drop can lead to forced liquidations of their positions, which worsens the decline.
6. Media incentives
The media often amplifies market movements. News of a major drop in crypto creates a climate of fear ("FUD": Fear, Uncertainty, and Doubt) and encourages more people to sell.
7. Regulation and external interventions
Announcements of strict regulation or external events (such as scandals, hacks, bankruptcies of crypto companies) can trigger a sharp decline and fuel panic.
8. Lack of institutional support
Unlike traditional markets, the crypto market does not have central entities to intervene in the event of a major drop, which gives a feeling of increased uncertainty.
