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Why is the Crypto Market Crashing?

Feb 21, 2023
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Between November 2020 and November 2021, the crypto market experienced a boom led by Bitcoin. It traded between $19,157 in November 2020 and $68,789, its all-time high, in November 2021. Then, the rally ceased. By May 2022, Bitcoin had lost over 50% of its value, validating the emergence of a crypto winter.

This collapse was triggered by a domino effect caused by several macro and microeconomic factors. These factors include the Russia-Ukraine war, the fall of TerraUSD and LUNA, the collapse of FTX, and interest rate hikes.

Reasons why the crypto market is crashing

The Russia-Ukraine War

Following the invasion of Russia into Ukraine, the crypto market plummeted. Bitcoin dropped by over 8% in 24 hours. The total crypto market cap lost nearly 10%, with over $150 billion wiped off within the same period. While Bitcoin has been marketed as a safe haven from market turmoil and political tensions, it still has a significant correlation with other risk-on assets. When such assets are affected by adverse events like war, it is highly probable that Bitcoin’s price will be affected also.

Bitcoin attempted to recover from the fall, especially when Ukraine started receiving Bitcoin donations. But this recovery was short-lived due to the fall of the stablecoin, TerraUSD (UST) and its sister token, LUNA.

The Fall of TerraUSD and LUNA

TerraUSD (UST) was an algorithmic stablecoin. This means that it maintained its value through complex algorithms that controlled demand and supply. UST pegged its stability to its sister token, LUNA and traded successfully in the crypto market. As of March 2022, LUNA was worth $120.

However, by May 2022, everything changed. Investors lost confidence in the Terra ecosystem, leading to a massive sell-off of UST. This caused the stablecoin to lose its dollar peg and led the algorithm to print more LUNA tokens. Thus, there was an excess supply of UST and LUNA tokens with no corresponding demand. In other words, both tokens were worthless. This wiped off over $50 billion from UST/LUNA’s market cap. The contagion also spread into the broader crypto market as investors lost confidence in Bitcoin and other cryptocurrencies, leading to the market losing over $400 billion. As the market battled this, it also had to cope with the Fed consistently increasing interest rates.

LUNA and UST Price Movement on the Week of Their Collapse (Source: CoinDesk)

Interest Rate Hikes

Following the economic downturn caused by the Covid-19 pandemic, interest rates remained low as a way to revive the economy. But with rising inflation throughout 2022, the Fed decided to increase the interest rates to slow down inflation. The Fed raised interest rates four times before November 2022.

These multiple interest rate spikes caused a decrease in money supply, company valuations dipped, the cost of goods and services increased, and individuals had less disposable income to invest. All these caused stock and crypto prices to decline as these markets experienced massive sell-offs. Investors pulled out their money from these markets and committed them to safe havens such as bonds.

With each interest rate hike, the crypto market fought to recover its value. And when it was about to recalibrate itself for the fourth time, it was hit by the collapse of another 'big' crypto player: FTX.

The Collapse of FTX

FTX came into the scene in May 2019 and gradually caught the attention of the crypto space. Holders of its exchange token, FTT got discounts on trading fees and had early access to FTX offerings.

However, the FTX empire began to crumble in November 2022 when a CoinDesk report questioned the solvency of FTX's sister company, Alameda Research. The report revealed that Alameda Research, a quant trading firm, held only FTT tokens on its balance sheet. There were no fiat currencies or other cryptocurrencies in its records.

Crypto investors began to raise eyebrows. Binance even sold all its FTT tokens. And 24 hours later, FTX announced a liquidity crisis. The company sought a bailout from venture capitalists and Binance. Unfortunately, nothing could be done to salvage the situation. A few days later, it filed for bankruptcy and even suffered an alleged $477 million hack.

FTX's collapse rocked the entire market as investors' faith in the market dipped. Billions of dollars were wiped off the market and the total crypto market cap sank below $1 trillion. The FTX contagion affected major crypto companies that had dealt (in)directly with the company. Some of these companies include institutional trading firm Genesis, blockchain financial services firm Galaxy Digital, crypto lending company BlockFi, and crypto exchange, among others.

What is happening to the value of Bitcoin and why?

Bitcoin's price change is not surprising. It is a highly volatile asset that can swing in any direction, at any given time. All it needs is a trigger(s). For 2022, there was a range of triggers such as mentioned above. The Russia-Ukraine war. The fall of Terra. Interest rate hikes. The collapse of FTX and the resulting contagion. Other triggers included Celsius freezing withdrawals and China's crackdown on cryptocurrencies.

Celsius Network, a crypto lending firm, halted withdrawals in June 2022 citing liquidity crisis due to extreme market conditions. The company later filed for bankruptcy in July while owing users an estimated $4.7 billion.

While Celsius was feeling the heat in the United States, Bitcoin miners and other crypto investors came under fire in China. Earlier in 2021, the country banned crypto mining and declared all crypto transactions illegal. This slashed China's proportion of global Bitcoin transactions by 90%.

These foregoing events and many others were all the triggers Bitcoin needed to plummet in value.

Why is Bitcoin so volatile?

Bitcoin has been compared to traditional investment instruments (e.g. stocks) and has seen price upswings not seen with these instruments. However, it differs from these instruments in that it is not tied to any asset. Stocks, for example, are pegged to a company, thus their price movements are influenced by the company’s performance. This gives them a level of stability. In contrast, Bitcoin is only a virtual asset whose value, theoretically, should depend on its utility. But in the real world, its value is influenced greatly by speculation. And this is what makes it volatile.

Bitcoin and other cryptocurrencies increase or decrease in value based on investors’ speculation. If investors speculate that Bitcoin price will rise based on macroeconomic and microeconomic dynamics, there will be a demand for Bitcoin and a corresponding increase in value. Conversely, if they speculate a price drop, there will be a decrease in demand and a drop in value.

This shows that Bitcoin is dependent on investors’ emotions, particularly fear and greed. And since human emotions are unpredictable, Bitcoin’s price movement is also unpredictable and volatile. Between 2021 and 2022, certain negative and positive events have triggered investors' emotions and caused Bitcoin to see major price shifts.

Negative events



    Elon Musk announced that Tesla would no longer accept digital payments because of the environmental issues associated with crypto mining.


  • China prohibited banks and other financial institutions from processing crypto transactions. The country also banned crypto mining.
  • Donald Trump branded Bitcoin as a “scam” that was competing against the US Dollar to become the currency of the world.


  • The Financial Conduct Authority blacklisted Binance. Then, prominent banks such as HSBC and Santander stopped their customers from making payments to Binance.
  • The International Monetary Fund (IMF) warned against the use of cryptocurrencies as legal tender. They stated that the widespread use of cryptocurrencies could hurt the stability and integrity of the global economy and financial system.


    China declared all crypto transactions illegal.



    Russian proposes to ban cryptocurrencies.


    Russia invaded Ukraine and destabilized the crypto market.


    TerraUSD (UST) and LUNA crashed.


  • Binance paused Bitcoin withdrawals because of a stuck transaction that caused a backlog.
  • Celsius Network halted withdrawals and transfers citing extreme market conditions.


    Celsius Network filed for bankruptcy.


    Poly Network suffered a $600 million hack. The hacker returned over half of the loot four days later, stating that they hacked the Network for fun and to expose its vulnerability.


    FTX collapsed following a CoinDesk report stating that it only held FTT tokens on its balance sheet.

Positive events

March 2021: Morgan Stanley became the first bank to give high net-worth clients access to Bitcoin funds.

June 2021: Elon Musk announced that Tesla would start receiving Bitcoin payments again only when 50% of its energy use was from renewable sources.

July 2021: Amazon advertised for a “Digital Currency and Blockchain Product Lead.” Thus, many speculated that it would start receiving Bitcoin payments.

September 2021: El Salvador made Bitcoin a legal tender.

Has Bitcoin’s bubble burst?

In 2021, Bitcoin increased by over 700% in 12 months, hitting an all-time high of almost $69,000. However, in 2022, its performance was dismal as it sank below $18,000. This has led many to believe that this is the end of the Bitcoin bubble. But it is too early to make that conclusion.

Bitcoin’s price history has shown that it is a highly volatile asset that can experience drastic price changes in either direction. For instance, in 2013, it soared from $13.40 to $1,156.10 within 12 months, only to fall to $760 in three days.

As mentioned earlier, Bitcoin’s value is dependent on investors’ speculation. Therefore, it can only be said that the Bitcoin bubble has burst (that is if it’s even a bubble) when Bitcoin experiences an irreversible price drop. Currently, the market is seeing some recovery, although investors are still skeptical. They still wonder if the market will crash again and if it will be anytime soon.

Bitcoin Price Performance from 2010 to 2022 (Source: Investopedia)

Will the crypto market crash soon?

There are predictions that the market will experience another downturn before it steers towards full recovery. Reasons given for these predictions include the general market collapse and the liquidity crisis in the industry. These factors have prompted big companies such as Coinbase, Gemini, and BlockFi to lay off a significant proportion of their workers.

Furthermore, the collapse of FTX has triggered stronger conversations regarding crypto regulation. If regulatory bodies succeed in enacting laws that will affect the decentralization and privacy qualities of the industry, the market may see heightened distrust from investors, which will crash it further.

When is the next crypto crash?

Although nothing is certain, many believe that the market will crash again in 2023. The market hasn't recovered fully, thus any major macro or microeconomic event can easily trigger another collapse.

Will Bitcoin go back up?

There is no definite answer to this question. The answer depends on who the question is thrown to. If thrown to a Bitcoin critic, then the answer will be “no” with valid reasons. And if it is thrown to a Bitcoin proponent, then the answer will be “yes,” also with valid reasons.

Valid Reasons for the Bitcoin Critic Valid Reasons for the Bitcoin Proponent
The crash of major cryptocurrency companies Development of transformative and innovative technology cutting across different crypto sectors including DeFi, NFTs, Metaverse, etc.
Crypto crackdowns in China, Russia, and other countries The appeal of simple, quick, cheap, and permissionless transactions enabled by Bitcoin and other cryptocurrencies.
Environmental concerns due to crypto mining The anonymity and confidentiality of Bitcoin and other cryptocurrency transactions
Crypto hacks and other security issues Bitcoin is a safe store of value that cannot be controlled by any bank or government
Calls for crypto regulations across different jurisdictions, which could cripple crypto’s key quality: decentralization

Only time will tell who is right: the critic or the proponent.

Will Bitcoin go up if the stock market crashes?

From what has been seen so far, Bitcoin experiences a price drop when there is a downturn in the stock market. An example of this was seen during the Covid-19 pandemic. However, if the stock market falls due to a factor like inflationary shock, then there is a probability that investors will shift to Bitcoin to protect their investments. This will cause a rise in demand for Bitcoin and a corresponding increase in value.

Frequently Asked Questions

Will the crypto market crash in 2023?

Experts say this may likely be the case. Although the market is seeing some recovery early in the year, many still consider it bearish.

Why has the crypto market crashed today?

Some of the reasons for the current crypto crash include the collapse of Terra, the fall of FTX and the resulting contagion, crypto regulatory issues, and security concerns.

When is the cryptocurrency market going to stop crashing?

There's no definite answer to this. The crypto market is highly volatile and responds to investors' sentiments. Thus, the market will only stop crashing when a greater proportion of crypto investors have perpetual confidence in the market.

Is the Bitcoin market crashing right now?

Many believe that the market hasn't recovered from the 2022 crash. So, one can assert that the market is still crashing.