Crypto Bubbles have become a very unique and interesting feature of the ever-evolving digital asset space. These bubbles can lead to profits and significant losses for some investors. So, understanding the whole system around crypto bubbles is very important if you are someone who is an avid crypto investor or someone who wants to invest in cryptocurrency. In this article, we will talk about everything you need to know related to crypto bubbles.
What is a crypto bubble?
A crypto bubble is a phenomenon that occurs when the market price of cryptocurrencies becomes inflated beyond their fundamental value. In simple terms, the market considers the current price of the cryptocurrency to be inflated against its hypothetical value. This situation occurs due to fear of missing out, investors’ excitement, and speculations.
During a crypto bubble, the prices of cryptocurrencies rise at a very rapid rate attracting more investors to invest. They hope for more profits from the sudden price surge. But because of sudden growth or volatility, the market faced a crash and the prices which were peaking came down as fast as they rose.
How did Crypto Bubbles originate?
The term “Crypto Bubble” does not have any specific origin date but it gained a lot of popularity and came to the surface when Bitcoin was booming in 2017. By the end of 2017, Bitcoin touched its all-time high of nearly $20,000 causing an influx of investors to invest in Bitcoins. They were driven by the fear of missing out and investing without any knowledge or understanding of the market or Bitcoins.
This led to a market crash in 2018. A lot of investors lost huge amounts of their investments with some losing over 100% of their initial investment within a week. This is what a crypto bubble is all about. The prices inflate like a balloon and rise, it appears huge and when the air is too much it bursts and comes down. The word crypto bubbles is widely used across different platforms today.
Why do crypto bubbles form?
There are many reasons why crypto bubbles occur or form:
- Limited understanding: Many people do not understand the whole system of blockchain which is the backbone of cryptocurrencies meaning many investors might not even know what they are investing in.
- Speculations: A lot of investors buy cryptocurrency with the mindset of short-term profits rather than the long-term value and profits they can get.
- Market manipulation: Some large holders who are called whales have the potential to influence the prices of cryptocurrencies because they plan the whole buying and selling together.
- Media: If media shows the positive side of the market then it can boost the prices attracting more investors to invest in different cryptocurrencies.
- Technological: If there are new advancements in the technological aspects of blockchain then more people are interested in it and it can spark more investments.
Signs of crypto bubbles
It is not easy to identify a crypto bubble, it can be very challenging but some signs can help you figure out:
- FOMO: You see that people with less knowledge about crypto are investing.
- Price growth: Rapid price surge in the market in a short period of time.
- Positive news: More news and discussions around the sudden rise of prices in the crypto market and more media attention towards cryptocurrencies.
- Crowd mentality: During price rise ups, many people blindly follow other investors and invest in cryptocurrencies even when they do not know anything about crypto. They just follow others.
Conclusion
Crypto bubbles are exciting and very tempting as well but due to their aspects and nature, they should be approached with a lot of caution and thinking. They have an initial rise in prices and a sudden fall down.
They work with human psychology where we we want more if we see an opportunity and risk everything in its way. So, understand the nature of these bubbles, their causes, and their impact, and then make an informed decision.
You may see a lot of opportunities to invest and gain profits while the market is at a peak but it also leads to substantial losses. So, do not rush, identify the signs of crypto bubbles and invest wisely.
