By Barsha Bhattacharya
Do you remember the 2024 Bitcoin resurgence? Or, are you aware of the crypto-volatility of 2021-22? All these are examples of crypto bubbles.
The global cryptocurrency market is exploding, and if we trust the market reports, the market will hit $45.3 billion by the end of 2025.
However, when I discussed this growth with many investors, they were not actually happy with the results. As such, dangerous growth or crypto bubbles have the potential to burst at any time.
So, be it the 9000% rallies of Bitcoin or the meme coins that become millionaires overnight, rapid growth is indeed a sign of volatility.
In other words, the quotient of fascination and fear regarding crypto bubbles is 1:1. Then, what’s the truth?
In this article, we will decode the truth and the growing buzz around crypto bubbles. It will help a newcomer or a seasoned investor to have a clear picture of the crypto market.
Crypto Bubbles: Over-Optimism Leading To A Bubble Burst?
You have to understand that crypto bubbles refer to a state of over-optimism. Also, there is a lot of speculation behind pushing the price of the cryptocurrencies beyond their real value.
Now, an investor will put their money in buying cryptocurrencies, irrespective of the actual value of the currencies. Here, they also rely a lot on the market speculation, hoping that the crypto rate will go up soon.
| “The crypto market is always volatile, but people still like to take their best chances. Before you take your chance, research it well, see how things turned out when the bubble burst. Since it can boom or crash at any time, it is best to keep an eye on the timeline to prepare well and ensure you are not surprised when things go down.” In-House Crypto Expert, Online News Buzz |
As a result, there will be an increased market demand, taking the price of the cryptocurrencies even higher.
After a point, this increased or over-optimized value creates crypto bubbles, which may burst at any time.
Once that happens, the prices will start falling uncontrollably, and the investors will face massive losses.
How Are Crypto Bubbles Formed? What Are The Main Factors?
The reasons behind the formation of crypto bubbles are multifaceted. The main reasons can be divided into three categories, psychological (the main factor), economical and technological.
Psychological Reasons Creating Crypto Bubbles
Herd mentality, the fear of missing out (FOMO), and media frenzy are the main psychological reasons behind the creation of crypto bubbles.
Fear Of Missing Out (FOMO)
From Investment Week to CNBC, every major forum is talking about FOMO among crypto investors.
It is SHOCKING to know that 84% of the crypto investors are hit by FOMO while making decisions.
So, when the price of any cryptocurrency is on the rise, the investor feels motivated to put their money into them.
Thus, the value of a crypto asset becomes higher than its actual value.
Media Frenzy
Are you investing in cryptocurrencies because you really want to? Or, is it the celebrity endorsement and media buzz prompting you to put in your money in cryptocurrency?
If the latter is true for you, you may be a victim of a media frenzy that can often blur your vision of the real market scenario.
Also, the overenthusiasm can lead to the overoptimization of crypto prices, creating crypto bubbles.
Herd Mentality
If there is a positive trend in the market, the investors are likely to follow that blindly. Often, they fail to use their own judgement.
Now, there is always an element of volatility if investments are made using public sentiment. In other words, the investment becomes irrational, creating a rise in crypto bubbles.
Technological Reasons Creating Crypto Bubbles
There is always a lot of excitement and speculation around cryptocurrencies and their values.
With technological advancements and adoption rates, the speculations around cryptocurrencies have even become stronger.
Further, if the speculated adoption rate is lesser than the real value of a cryptocurrency, crypto bubbles will be formed.
Economic Reasons Creating Crypto Bubbles
Market manipulation and market hype are two economic reasons behind crypto bubbles.
Market Manipulation
Have you heard the term “Pump-and-dump” activities? It refers to creating artificial reasons to raise the the price of the cryptocurrencies.
When the crypto prices go up, the investors sell all their holdings. As a result, a massive drop takes place in crypto currency, leading to crypto bubble burst.
Market Hype
Market hype is the most tried-and-tested factor leading to the creation of crypto bubbles. It especially creates a buzz among the novice investors.
Simply put, a hype is created about the possible high returns for their investment. Now, a novice investor won’t understand the tricks of the market.
So, invariably, they will face loss when the market price of cryptocurrencies goes down due to market volatility.
How Will You Identify Crypto Bubbles? Know The Red Flags 🚩
Insane public enthusiasm and unrealistic pricing predictions are prominent red flags for identifying crypto bubbles. Know the rest.
🚩Insane Price Predictions
Unreal expectations about the price hike are the most prominent signs of crypto bubbles.
Greed Index, Crypto Fear, and other economic indicators can identify the possibility of crypto bubbles.
🚩High Trading Volumes And Increased Leverage
There is a market speculation when the trading volume of cryptocurrencies suddenly goes up with higher leverage.
The 2021 crypto crisis is a classic example of this.
🚩Insane Public Enthusiasm
Do you notice excessive crypto trading happening all of a sudden? It could be a sign of crypto bubbles.
Also, a sudden rise in public enthusiasm can impact Google Trends and other metrics.
🚩Relative Strength Index (RSI) Overbought Signals
The Relative Strength Index (RSI) analyzes the price movement of cryptocurrencies. It will track how fast the price of cryptocurrencies is changing.
However, when the RSI is over 70, the index pair is considered overbought. When this happens, the market will likely fall.
What Are Some Examples Of Crypto Bubbles In Real Life?
Crypto bubbles are not just concepts. Here are some real-life examples.
1. Bitcoin Rise And Crash In 2011
Bitcoin has had a tremendous rise in price since the beginning of 2011.
- In April 2011, the Bitcoin price was $1.
- However, in June 2011, the same price went up to $32.
This hike was a result of sudden media hype and public buzz around Bitcoin. However, the high price only remained till November 2011 and the price dropped to $2.
2. Bitcoin Bubble In 2013
In 2013, the price of Bitcoin further soared, with the value shooting up to $1,100. It remained like that until 2015, when it crashed to $200.
3. ICO Boom In 2017 And Crash In 2018
Initial coin offerings (ICOs) rose in popularity in 2017. As a result, many investors became part of the market.
Furthermore, the price of Bitcoin reached around $20,000 by December 2017.
However, in December 2018, the Bitcoin price dropped to $3000.
As a result, investors faced massive losses.
4. The Fluctuations Of The Crypto Market In 2021-22
The crypto market witnessed a massive rise in 2021, with Bitcoin reaching $67,000.
A boost in institutional funding and support from powerful people caused this. Nevertheless, by the middle of 2022, Bitcoin had an epic fall.
5. Bitcoin Resurgence In 2024
For the first time, Bitcoin crossed the threshold of $100,000. The election of a crypto-friendly government in the USA and regulatory changes led to this growth.
Furthermore, 2024 saw an increasing institutional demand for cryptocurrencies.
How to Avoid The Negative Impacts Of Crypto Bubbles?
Setting a clear target for your profile, avoiding FOMO, and making smart decisions are some basic ways to avoid the negative impacts of crypto bubbles.
Moreover, you need to diversify your portfolio and implement stop-loss orders, meaning selling your investment before the price goes down beyond a certain level.
Do You Want To Track Cryptocurrencies? Use The Crypto Bubbles App
With the simple and effective interface, the Crypto Bubbles App will help you track and visualize the crypto market.
You can use this app on Android and iOS devices. Furthermore, the bubble charts on the app feature the following essentials.
- Price
- Market Cap
- Trading Volumes of Different Coins
Moreover, the app has crucial features such as real-time updates, multiple currency support, quick access links, and a holding calculator.
Is Cryptocurrency Itself A Bubble?
Considering the volatile setup, cryptocurrency may look like a world full of bubbles.
Now, blockchain technology is well established. However, the technology’s efficiency does not eliminate the market’s speculative nature and inefficiencies.
Still, institutional investors have indeed accepted cryptocurrencies, and Bitcoin is now integrated into exchange-traded funds (ETFs).
Crypto Bubbles: Be A Wise Investor By Choosing Safe Possibilities
So, can you avoid the perils of crypto bubbles completely? No, it is not possible for you to completely stay away from the impacts.
Real-life crypto bubble incidents such as the 2011 Bitcoin bubble or the 2017 ICO bubble have shown how the bubble burst can crash your investment.
However, if you are a wise investor, you can identify the signs or speculations of crypto bubbles.
Then, you can avoid making impulsive investments. Above all, you can set your profit target and use your knowledge to diversify your portfolio and minimize risks.
Crypto Bubbles Frequently Asked Questions (FAQs)
Here are some frequently asked questions and answers about crypto bubbles.
1. Can We Predict Crypto Bubbles?
No, you cannot predict the exact moment of crypto bubbles. However, as an aware investor, you can watch out for the following signs to predict crypto bubbles.
- A sudden rise in the price of cryptocurrencies
- Frequent media coverage and hype around it
- A sudden rise in cryptocurrency sales
All these are part of speculative behaviors, and they indicate a potential crypto burst in the near future.
2. Can I Invest During Crypto Bubbles?
No, you cannot invest during crypto bubbles as there are high risk factors.
During crypto bubbles, the price of crypto assets goes up. So, you will end up buying the crypto assets at a rate much higher than their actual value.
Naturally, when there is a bubble burst, you will lose a lump sum amount of money.
In short, making impulsive investment decisions during crypto bubbles will lead to your financial doom.
3. What Is The State Of The Current Crypto Market? Is There A Bubble Right Now?
Yes, currently, there are early signs of crypto bubbles.
- Thanks to the regulatory forbearance and permission of the Trump administration, Bitcoin is now valued at $100000.
I have discussed the issue with many hedge fund owners, and all of them call this phenomenon “insane.”
4. Do All Cryptocurrencies Have The Risk Of Crypto Bubbles?
Yes, all cryptocurrencies have the risk of crypto bubbles. However, the cryptocurrencies which are less popular and have less liquidity are likely to have higher risks of crypto bubbles.
Cryptocurrencies that are well-established are more practical in their application and have a strong investor base.
So, they have a strong foundation, and they are less susceptible to crypto bubbles.
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