A fire sale is an event when market players are massively selling an asset at a very low price or with a very big discount. It can be triggered by various factors, such as a strong bearish trend, a whale selling a large amount of a particular cryptocurrency, sudden events that can impact a cryptocurrency price, such as government regulations or law suits.
This triggers a sort of a panic among the market players who immediately start getting rid of a coin they no longer consider promising, to cut their losses. This creates a situation where the supply of a particular cryptocurrency exceeds the demand on the market, and it brings the prices down dramatically.
A good example of a fire sale happened when the news of the SEC lawsuit against Ripple founders for raising $1.3 billion by offering unregistered assets, hit the market. Ripple holders started selling their XRP coins, anticipating a severe price drop, thus making said drop even larger. XRP’s market cap dropped by 63% as a result in December 2020.
