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Correction Vs Crypto Crash: The Comparison

what is a crypto market correction
In this post we will be looking closely into the similarities and differences between a crypto crash and what is a crypto market correction.

When you think of either a crypto crash or correction, the first thing that comes to your mind is volatile price. But a crash and a correction are two different things. 

And in this post we will be looking closely into the similarities and differences between a crypto crash and what is a crypto market correction. This is especially vital information for crypto traders as crypto overall is a highly volatile market to trade and oftentimes newer traders in crypto can easily lose their capital because they do not have sufficient knowledge and understanding of how the crypto market works.

And understanding how to differentiate a correction from a crypto crash will help you become more profitable as will be explained further below in this post.

But it should be said that even though crypto trading can be more volatile than say stocks or forex there are still fundamental day trading principles and knowledge or market movements that apply across all day trading markets. And knowing these will help you become a more consistent and profitable trader.

So read one and learn how to distinguish a crypto correction from a crypto crash and prepare to make some crypto day trading profits.

What is a Crypto Market Correction?

A correction is a temporary decline in the value of an asset. It usually occurs after a prolonged period of appreciation. A correction is a normal and healthy part of market movements and normally takes place after a fairly rapid upward movement in price after which price ‘corrects’ itself.

Although a crypto correction is a decline in the price of a cryptocurrency, declines in prices do not always constitute corrections. They are sometimes caused by external factors, such as government regulations or fluctuations in the value of fiat currencies. 

Some traders (probably less experienced and less knowledgeable or who don’t have a long-term picture in mind) see corrections as negative events. But as stated corrections are normal and for those more knowledgeable traders, corrections are even an excellent opportunity to buy an asset at a much lower price. And this can be 10-20% lower in terms of price which is a buying opportunity if you have the right mindset and can distinguish between a crash and correction.

A crypto correction, therefore, is simply a decline in price that does not reflect the true value or future potential of a coin.

It is a short-term decline lasting anywhere from a day to months. Think of it as the crypto equivalent of a stock market correction, which happens when the market takes a short-term hit.

The USD Coin (USDC) price and charts trending down are a fairly rare example of correction in the crypto market. It’s rare because the USD Coin is a stablecoin, so it’s not supposed to have spikes or dips in value.

Further below in this post we provide historical examples of crypto corrections and crashes that have had fairly significant impacts on the crypto market landscape over the years.

The correction of cryptocurrency is a normal phenomenon, it’s not a crash. However, many people think that the cryptocurrency will disappear due to the USDC incident and other factors like Ethereum news.

what is a crypto market correction
A Crypto Crash is when a cryptocurrency’s value drops by more than 20% in a single day.

What Is a Crypto Crash?

A Crypto Crash is when a cryptocurrency’s value drops by more than 20% in a single day. They most commonly occur when the market is flooded with sell orders and there are no buy orders at a higher price, causing the price to continue to plummet. 

This can be caused by one of many things including bad news about a cryptocurrency, a large exchange being hacked or going offline, or simply a natural market fluctuation.

This often happens when there is a good deal of bad news regarding the crypto space, which can include government regulations, hacks, scams, and more. These crashes are usually short-lived and the price of cryptocurrencies shoots back up relatively quickly. 

However, during these crashes, many people experience panic which can lead to people making irrational decisions.

Correction and crypto crash are two different things. Correction is a normal market behavior which makes the ups-and-downs in price of an asset look like a staircase or curved line. Crypto crash is when the market drops sharply and stays at low prices for a long time (weeks, months). 

For example, the Arbitrum (ARB) price and chart shows that Arbitrum’s price has been going up and down in a regular price action pattern since its creation in 2017. We can say it’s in a correction state now. 

Related Read: Best Books About Cryptos

How To Recognize A Crypto Crash

Crypto crashes can also be recognized by other factors as well. Shifts in public sentiment from being bullish on cryptocurrencies to growing concerns about fraud will also lead investors to look for ways to liquidate their assets. 

This can be done by selling off digital currency. Investors may begin selling after governments or central banks make statements that they intend to ban or control cryptocurrency. 

One sign that a crash is about to happen is seeing very high volumes for one or more cryptocurrencies. If you see that a currency’s volume has just been trading at all-time highs for several hours, then expect some sort of correction. 

Another possible warning sign is seeing an unusually high volume for one cryptocurrency paired with low volumes for others – this might be indicative of miners buying up mining equipment for a currency that has just had its difficulty adjusted downwards by developers, which usually has the effect of boosting mining profitability. 

what is a crypto market correction
Correction is a normal market behavior which makes the ups-and-downs in price of an asset look like a staircase or curved line.

How Often Do Market Corrections Happen?

Market corrections (also known as crashes) occur more frequently than you may think.

The key is knowing what to do in a down market. As long as you have a long-term investment plan in place (and you have enough cash on hand to protect your portfolio during a downturn), you shouldn’t be too worried about market fluctuations. You can make some simple adjustments to your portfolio without having to overhaul it completely. 

For example, you can use stop losses to limit your downside risk if things start going south and rebalance your portfolio when appropriate so you’re not getting too concentrated in one area of the market.

Historical Crypto Crashes & Corrections

To really understand crypto crashes and corrections it’s a good idea to look at past instances where these crashes and  corrections have impacted or even reshaped the cryptocurrency market landscape in a major way. 

Crypto Crashes: Historical Examples

Bitcoin’s 2017–2018 Plunge

One of the most notable crypto crashes happened in late 2017 and early 2018, following Bitcoin’s unprecedented bull run. Bitcoin, along with numerous other cryptocurrencies, experienced a meteoric rise in value, culminating in a peak near $20,000 per coin in December 2017.

However, this bullish momentum quickly dissipated, leading to a sharp and prolonged decline in prices throughout 2018. Several factors contributed to this crash, including regulatory crackdowns in various countries, concerns over scalability and transaction speed, and speculative excesses in the market. Bitcoin’s price eventually bottomed out below $4,000 in December 2018, marking a significant loss of value for investors.

The 2021 May Crash

In May 2021, the cryptocurrency market witnessed another notable crash, driven by a confluence of factors, including regulatory uncertainty, environmental concerns surrounding Bitcoin mining, and a broader market sell-off.

Bitcoin, Ethereum, and other major cryptocurrencies experienced substantial declines in a matter of days, wiping out billions of dollars in market value. The crash underscored the volatility and susceptibility of the crypto market to external factors, prompting renewed discussions about risk management and market stability.

Crypto Corrections: Historical Examples

Bitcoin’s 2019 Retracement

Following the 2017–2018 crash, Bitcoin embarked on a gradual recovery in 2019, reclaiming lost ground and attracting renewed investor interest. However, during this period, Bitcoin also experienced several corrections, characterized by temporary pullbacks in prices amid ongoing volatility.

One notable correction occurred in the summer of 2019 when Bitcoin’s price retraced from around $13,000 to below $10,000 in a matter of weeks. Despite the correction, Bitcoin’s long-term bullish trend remained intact, with prices eventually surpassing previous highs in subsequent months.

what is a crypto market correction
Ethereum, the second-largest cryptocurrency by market capitalization, has also experienced its share of corrections amidst volatile market conditions.

Ethereum’s Price Adjustments

Ethereum, the second-largest cryptocurrency by market capitalization, has also experienced its share of corrections amidst volatile market conditions. In 2020, Ethereum witnessed multiple corrections as it grappled with scalability challenges, network congestion, and uncertainties surrounding its transition to Ethereum 2.0.

Despite these setbacks, Ethereum continued to demonstrate resilience, with its underlying technology and ecosystem garnering sustained interest from developers and investors alike.

Can You Keep Your Portfolio Safe Against Crypto Correction?

The answer is no. No, you can’t protect your portfolio from a market correction, and you shouldn’t try. In fact, the harder you try to avoid a market correction, the worse off you might be when—not if—the inevitable happens.

In the long run, the stock market always goes up. In the short term, however, there will inevitably be dips in performance—and those dips may last for a while.

With such high frequency, it’s worth taking a look at how you can best protect yourself from a market correction. The first thing you should do is to prepare for it before it happens. Don’t make your investments react to a correction. 

That way you won’t be thrown into panic mode when markets fall unexpectedly; instead, you’ll be ready to act in a rational manner when an opportunity presents itself.

Corrections happen for many reasons, and there’s no way to predict when one is coming. Some reasons include political instability, economic problems in other countries, or even just overreaction from investors.

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Final Thoughts

When it comes to comparing correction and crypto crash, there are definitely similarities that exist between the two. But knowing how to differentiate them and take advantage of them in order to take advantage of lower priced crypto that you can buy and sell higher, is important knowledge to have.

And I trust that reading through this post will help you to understand the difference and be able to use this knowledge to make profit in the crypto markets. 

And if still not clear, always remember that the best approach to day trading in any market is often to simplify your day trading technical analysis and indicators in order to become a more consistent and profitable trader.

Correction is used to describe a short-term drop in prices of a stock or asset class. 

A crypto crash or a crypto downturn is the term used to describe the drastic decrease in value of cryptocurrencies and digital assets. When comparing these two terms, it is important to differentiate between the two concepts so that you can understand how they work better and so you can become a more profitable crypto trader.

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