What Causes Flash Crashes in the Cryptocurrency Market?

Do not panic, these flash crashes are merely instigated by the ‘smart money’.

Once a particular market shows sufficient weakness, a mass selloff can be initiated by those with large positions who are seeking liquidity to top up their portfolio. By pushing the price lower, ‘at-market stop loss sell orders’ begin triggering. This results in a cascading or avalanche effect where multiple stop losses force the price lower and lower in a continuing spiral. This exponentially increases the traded volume and enables the liquidity required for the smart money to re-enter the market at a lower price undetected.

To avoid being left out of pocket by these large price fluctuations, set your stop losses beyond the typical “just below support” mantra. Give your positions enough breathing room to avoid being sold off just prior to the rebound beginning.

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