Why Crypto Is Crashing

Most cryptos are down significantly from their all-time highs. The biggest of the bunch: Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), and Polkadot (DOT) are all down 10% or more from highs. Though it's not technically a 'crash' until the assets plummet 20%, this is still a crash in many investors' minds. So, what's the reasoning behind the negative price action?

There's no, one, TRUE reason crypto is dipping, but we can point to some things - generally just the changing investor psychology. Only just a couple of weeks ago, investors were focusing on the high growth potential of the crypto market, but now they're focused on the risks at hand. Negative headlines have had a lot to do with this. For example, there was news out of China earlier this week stating that the Chinese government was going to crack down further on cryptocurrencies.

Further, we received news that congress still isn't getting anywhere on its discussion on how it wants to regulate cryptocurrencies. Both sides of the aisle have two vastly different opinions on what regulation (or lack thereof) should look like. Though this isn't new news, it signals that the Bitcoin spot ETF is likely to be delayed even further. This is because the SEC wants regulation and foresight into knowing the ETF won't be used for fraudulent or manipulative purposes before approving the investment fund.

Thanks to this news, instead of focusing on the trillions of dollars that a spot ETF would bring to cryptos, the focus has been on how this ETF will likely continue to be delayed. As long as congress gets no where, neither will the proposed ETF. The SEC is playing a waiting game, and isn't feeling any pressure into approving the fund.

In addition to the negative news headlines and waning investor sentiment, we can point to the amount of leverage in the markets currently. Anytime leverage ratios start to outpace the price of the respective cryptocurrency, it's probably time to get cautious. Currently, leverage ratios are outpacing prices in almost every major cryptocurrency. However, a leverage reset is usually just a healthy "shaking of the tree".

• Another possibility when leverage ratios are high and prices fade, is the fact that investors using leverage may not be able to meet their leverage fees, and instead are forced to sell - just the same as being liquidated as prices fall due to not having the assets on hand to cover the leverage.

Lastly, "it's fallen and recovered before" is simply horrible and lousy investing logic. Just because something has dipped and recovered in the past, makes it no guarantee it will do so in the future. If you hear an investor or trader make this claim, please politely ignore them. Instead, rely on hard evidence such as the utility in the crypto markets being at all time highs. As utility, or usability, increases - so will the cryptocurrencies. The only things ensuring cryptos have staying power is their usability as a store of value, and their functionality in transactions. Both of these items are as strong as they've ever been in cryptoland, so there is no cause for concern.

I believe all major cryptocurrencies will recover to previous highs in short order. The smart investor will tune out the noise and lousy investment logic, and form their own conclusions as to why cryptocurrencies will or won't recover.

*I have never and will never accept compensation from a company or cryptocurrency for spotlighting their crypto, business, or stock. These are my own thoughts, opinions, and ideas. This article should not be interpreted as financial advice.