Why is crypto dropping and how do you deal with it?
_01K7VGB4Q8BYXHASKHBT3A61DH.png)
What is a crypto drop?
A crypto drop occurs when the price of a cryptocurrency decreases in value. This can be a short-term, temporary dip or a more frequent movement across the entire market. Drops are normal in the volatile crypto market, even major drops can happen during a bull market. That’s why traders shouldn’t always fear a crypto drop: it’s simply part of the game.
Key Takeaways
- A crypto drop happens when selling pressure outweighs buying interest and can be either temporary or structural.
- Macro-economic factors, regulations, negative news, liquidations, and market psychology all play a big role in declines.
- There are different types of drops like dips, corrections, and crashes, each with its own scale and context.
- Drops also occur during bull markets and can even be part of a healthy market structure.
- How you handle drops depends more on your strategy, risk management, and emotional control than on predicting the market.
Why is crypto dropping?
Crypto drops when selling pressure becomes stronger than buying interest. This is usually influenced by several factors, such as interest rate hikes, regulations, negative news about hacks or bankruptcies, or even liquidations. A drop is often the result of multiple events happening at the same time. These are the main factors:
- Macro-economic factors: Interest rate hikes, inflation data, and fears of recession make crypto investments less appealing for some. When the Federal Reserve repeatedly raised rates in 2022, Bitcoin fell from around $69,000 to $17,000 within a year as risk assets became less attractive.
- Regulations and policy: New laws, bans, or lawsuits create uncertainty and selling pressure. In June 2023, the price of Ethereum dropped significantly after the SEC filed lawsuits against Binance and Coinbase, which sparked uncertainty in the market.
- News and sentiment: Hacks, bankruptcies, and other negative events damage trust and increase panic. During the FTX collapse in November 2022, Bitcoin lost over 20% in just a few days and Ethereum dropped more than 30% due to panic selling.
- Liquidations and leverage: Since many traders use leverage, positions can automatically be liquidated during downturns, causing extra downward pressure. On August 19, 2023, a sudden BTC drop below $25,000 triggered over $1 billion in forced liquidations, amplifying the fall even further.
- Behavior and psychology: Panic, herd behavior, and emotional decisions make drops worse. In May 2021, after Elon Musk posted negative tweets about Bitcoin, a large part of the market sold in panic even though Bitcoin’s fundamentals hadn’t changed at all.
What types of crypto drops are there?
There are several types of crypto drops, each with their own characteristics, duration, and context. These aren’t strict definitions, but they help understand market phases better.
| Type of crypto drop | Characteristic | Indication | Context |
|---|---|---|---|
| Crypto dip | Short pullback | ~ -3% to -10% | Often caused by market volatility |
| Crypto correction | Revaluation after an uptrend | ~ -10% to -30% | Healthy market stabilization |
| Crypto crash | Fast, sharp drop | > -30% | Usually panic after bad news |
Crypto dip
A crypto dip is a relatively small decline in a short time, often caused by profit-taking, news, or simply the volatile nature of the crypto market. Dips usually recover quickly, especially in markets with a positive sentiment. For many traders, a dip can be stressful, but in a bull market, dips are often seen as buying opportunities rather than structural declines.
Crypto correction
A crypto correction is a larger decline, typically 10% to 30%, that usually follows a strong rally. You can see it as a kind of “reset” of the market, bringing recent price increases back to a more realistic level. Corrections last from several days to weeks and can even happen during bull markets.
Crypto crash
A crypto crash is a sudden, steep, and panic-driven drop of more than 30% in a short period. Crashes are often triggered by major events such as hacks, bankruptcies, regulatory changes, or waves of liquidations. Unlike dips and corrections, a crash can lead to a bear market, and some cryptocurrencies never recover afterward.
How to deal with dropping crypto prices?
Falling prices are part of the crypto world, but how you react often matters more than the drop itself. Emotional decisions usually aren’t the best ones. A professional approach focuses less on predicting markets and more on controlling your behavior, preparation, and plan.
- Stick to a clear strategy
Doing nothing is also a strategy. During downturns, many people act on emotion rather than logic. Panic selling or impulsively “buying the dip” without a plan often leads to losses rather than gains. Having a set strategy helps you stay grounded when price action doesn’t. The hardest part about having a plan is sticking to it.
- Avoid emotional traps
Many beginners make three classic mistakes during drops: they panic-sell at the bottom, buy back in due to FOMO once prices recover a bit, or keep holding losing positions because they’ve already invested money. These are emotional reactions, not strategic moves, and that’s exactly why they often lead to bigger losses.
- DCA (Dollar-Cost Averaging) with Auto Invest
Dollar-Cost Averaging is a popular strategy where you invest fixed amounts regularly. It reduces timing risk and smooths out volatility. DCA removes emotion from the buying process and is ideal for long-term investors. With Finst, you can use Auto Invest to easily apply your DCA strategy.
- Fundamental value
When crypto prices drop, don’t just look at the price, think about why you hold that coin. If nothing has changed fundamentally, the drop might just be temporary. Ask yourself: Is the project still working? Is the technology being developed? Is usage still growing? If your view has changed, exiting, even at a loss, can be a rational move.
- Risk management
If you enter a drop without a plan, without limits, and without cash reserves, you’ll have to make decisions in the middle of the panic, and that’s usually where mistakes happen. Prepare your risk management in advance: don’t go all-in, diversify your portfolio, and for example, make use of Crypto Bundles from Finst. Keep a cash reserve and decide ahead of time when you’ll exit if you’re wrong.
- Know when not to trade
There are moments when doing nothing is the best move, like during low liquidity, high volatility, or when you don’t have a plan. Just because you can do something doesn’t mean you should. Not trading isn’t weakness, it’s a strategy when preparation is missing.
Final thoughts
Crypto drops are an inevitable part of the volatile crypto market and don’t have to be negative, as long as you act according to a plan instead of emotions. By considering fundamental value, managing risks in advance, and consistently applying strategies like DCA, a drop can actually be a rational opportunity for reassessment or accumulation. The difference between loss and profit rarely lies in the move itself, but almost always in how you respond to it.
