Following a significant shift in the sentiment on the cryptocurrency market, the biggest cryptocurrencies on the market entered an active correction phase, losing up to 5% of their value, and here are the potential reasons behind it, per CoinMarketCap.
Technical oversaturation of the market
Usually, the first reason behind each short-term correction after the strong pump of the market is oversaturation of the market. Whenever conditions on the market become pleasurable, traders become more active, with more purchasing power flowing into the market.
As time goes by, the balance between asks and bids breaks down, which causes volatility spikes. Once liquidity drops and some selling pressure appears, most assets lose part of their value before growing again. In additional to technical oversaturation, traders become less psychologically stable and tend to take profits earlier than necessary.
Axie Infinity hack
One of the biggest exploits in the industry and the biggest hack of 2022 already disrupted the cryptocurrency community, which could have caused an outflow of funds from projects related to the GameFi industry, which in turn creates a panic on the market in general.
The biggest losers on the market are somehow related to either the GameFi or DeFi industries, including Axie, Convex and Kadena.
Market needs to "cool off"
In the last two weeks, a large part of the cryptocurrency market gained up to 50% to its capitalization and value, which is considered a lot even for such a volatile type of asset. It is historically and statistically proven that assets almost never go "parabolic" and gain value with no correction.
We are witnessed the same case now when most assets, including Cardano, Solana, Ethereum and even Bitcoin, need to cool off and gain more trading volume and funding to potentially continue their path up.