Deflationary Crash
A deflationary crash is a sudden and dramatic decrease in the value of cryptocurrency, usually due to large-scale selling activity. It occurs when investors become concerned about the future prospects of a particular currency or market as a whole, leading them to liquidate their holdings en masse. The resulting selloff often leads to an unsustainable downward spiral that can quickly trigger panic among traders and investors alike.
The main cause of this phenomenon is typically rooted in speculation – namely, overvaluation by speculators who drive up prices too far beyond what would be considered fair market values based on underlying fundamentals such as utility, scarcity or technological innovation. When these unrealistic expectations are dashed against reality (i.e., prices fall below expected levels), holders may then rush for the exits out of fear or uncertainty – thus exacerbating losses even further with each roundtrip trade executed at lower values than before until equilibrium is eventually restored through natural price discovery mechanisms like supply/demand curves and market forces acting upon buyers & sellers’ sentiments alike.
Ultimately, while it’s impossible to predict exactly when or why deflationary crashes occur – they tend to happen most commonly during periods where there has been rapid growth within the crypto asset class followed by equally swift declines precipitated by exogenous shocks from outside sources such as regulatory changes or negative news headlines regarding potential frauds/scams related thereto – so caution should always be exercised whenever investing into new digital assets whose long term viability isn’t yet proven given how volatile these markets remain today relative other traditional investment options available globally!
