What can we learn from a crypto flash crash?

Crypto crashes happen for various reasons; after all, it is one of the most volatile markets today. The crypto space is generally controlled by market sentiment, which is primarily affected by good or bad news triggering a positive or negative market reaction.

The recent flash crash of the market was caused by uncertainty around global inflation, the Ukraine war, and the US government plans regarding tax and interest rate hikes. It all began in April 2020; cracks in the market started to show when Joe Biden announced he would make moves to increase capital gain tax.

However, with the report of rising inflation in the US and the Feds trying to combat it with higher interest rates, the crypto market reacted swiftly in the negative.

The biggest lesson to learn here is that times have changed. Crypto was often seen as a hedge against inflation or unfavorable government monetary policies, but it appears this is no longer the case. The crypto market now falls in line with the stock market, mimicking similar behavior and reaction to government policies.

This could be because a large portion of crypto whales are now institutional investors, not ordinary folks. So when they get scared, they take their money out of "risky" assets, and the market plummets in response.