Decrypting Bitcoin: How is 'crash' and 'corrected' different?

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Bitcoin: What's the Difference Between Crash and Correction?

Cryptocurrency investors and traders often confuse 'crash' and 'correction' when Bitcoin drops in price. However, their meanings are completely different.

What is 'crash'?

In media finance, an asset is counted as a “collapse” when its value falls by more than 10% in a single day. This type of crash is often triggered by unexpected and negative effects, causing panic among investors, making them want to exit the market immediately.

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The fact that Elon Musk tweeted, claiming that Bitcoin mining is harmful to the environment is a good example.

While technical factors play an important role in Bitcoin price, other fundamental factors such as: macroeconomic events, sudden regulatory changes or important announcements from Big companies can cause a big crash in the market.

The crash that occurred on April 10, 4 was the most severe to date. They occurred shortly after the American Financial Crimes Enforcement Network (FinCEN) shut down the Bitfloor exchange and required crypto exchanges to register as a “remittance service.”

At that time, the Bitcoin price dropped more than 73% within 24 hours, from $259.34 to almost $70.

One of the most recent examples of a “crash” is “Black Thursday,” March 12, 3. After the World Health Organization declared Covid - 2020 a global pandemic, the price of Bitcoin dropped by 19%, from $ 40 to $ 7.969 in 4.776 hours.

What is 'correction'?

A correction describes bearish momentum when an asset's price loses more than 10% from its several-day peak. This happens when Bitcoin is overvalued, the market will tend to correct itself as the bullish momentum dries up and traders need time to consolidate and recover.

When most of the community bought the asset and very few new buyers backed the uptrend, the rally started to stall and exhaustion occurred. At this point, the price starts to decrease when the sell order exceeds the buy order.

Corrections are usually initiated by minor events and technical factors such as buyers facing strong resistance, low volume, etc.

In the process of technical analysis, corrections are often detected by indicators such as RSI or Fear and Greed Index.

Should investors be worried?

In fact, the volatility of Bitcoin is one of the characteristics of this cryptocurrency. Longtime traders and investors are almost used to Bitcoin's high volatility and see it as normal.

Besides that, analysts believe the current drop could be a healthy correction and a good time to invest.

This is not the first time Bitcoin has seen such a drastic drop. Despite asset price drops of up to 50%, this is quite typical in volatile markets, especially after Bitcoin's recent surge to more than 600%.

In the past, Bitcoin has seen a drop of more than 70% in just one day. After that, the value of Bitcoin increased back 10 times in a short time.

Looking to the past, no matter how strong the drop, Bitcoin always bounced back and made new highs.


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