October’s reputation for market turmoil has struck again, this time with bitcoin experiencing a significant drop rather than the stock market.

Just this past Sunday, bitcoin plummeted to 15.4% below its recent all-time high, a decline that exceeds the 12.8% drop seen during the 1929 crash of the Dow Jones Industrial Average.

Many in the crypto community are reeling from this decline, attempting to downplay it as a singular event driven by unique circumstances. However, they may be misguided; downturns are a natural part of both the stock and cryptocurrency markets.

This aligns with a theory first presented in a 2002 letter to the journal Nature, which explored market crashes. The study found that the frequency and intensity of crashes are consistent across various types and sizes of markets, indicating a common underlying principle.

Essentially, crashes are woven into the fabric of financial markets. Their prevalence stems from the fact that large investors often dictate market movements. When these key players decide to sell simultaneously, prices can plummet. While regulations might delay such events, they cannot prevent them indefinitely.

The theory offers a fresh lens through which to view the narratives circulating among crypto enthusiasts in the wake of this crash. Here are a few common justifications:

• “Flash” Crash: While analysts have yet to define this term, labeling the weekend’s event a “flash crash” suggests it lacks seriousness. However, all crashes involve significant losses over short periods, by definition. What type of crash wouldn’t qualify as a “flash crash”?
• Limited Selling by Large Holders: Some argue the initial sell-off was restricted to a small group of large holders, whose actions triggered further selling. Yet, research indicates that all crashes stem from simultaneous selling by major players, making bitcoin’s recent decline no different from others.
• Excessive Market Risks: One of the more amusing explanations suggests that the downturn was due to “too many risks in the market.” Ironically, it’s often the perception of such risks that drives large holders to sell, a reality as old as the markets themselves. Again, bitcoin’s decline mirrors trends seen in other crashes.

In conclusion, crashes are as inevitable in the cryptocurrency landscape as they are in traditional markets. It may be time for investors to accept this reality.