Definition ∞ Market cleansing refers to a period of significant price decline and reduced speculative activity that purges overleveraged positions and weak projects from a market. This process often involves widespread liquidations and a decrease in investor confidence, leading to the removal of unsustainable ventures. While painful for participants, it can reset market valuations to more sustainable levels and remove excess speculation. It typically precedes a healthier market recovery.
Context ∞ Crypto news frequently uses the term market cleansing to describe the aftermath of major market corrections or bear markets. This period is often seen as necessary for the long-term health of the digital asset space, removing projects lacking fundamental value. Understanding market cleansing provides context for why sharp downturns can ultimately lead to a more robust and resilient ecosystem.
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