What are crypto bubbles, how do they form, and should you worry about them? Learn here.
Introduction
If you’ve been in the crypto industry for a while, you’ve likely heard of terms and abbreviations like BTC, ETH, blockchain, crypto exchange, digital wallet, fiat currency and the like. Another term that you may be aware of is called crypto bubbles – you’ve probably heard of them, too.
What are Crypto Bubbles?
In the cryptocurrency world, crypto bubbles refer to a phenomenon where the prices of a given cryptocurrency very rapidly increase. The term applies to all cryptocurrencies in the market and includes the most popular cryptocurrencies like Bitcoin, Ethereum, Tether, BNB, Solana, USD Coin (USDC), as well as lesser-known cryptocurrencies. Crypto bubbles occur because that the price of coins rapidly increase due to many people getting excited about them and investing into them.
Should You Worry About Crypto Bubbles?
Crypto bubbles aren’t anything revolutionary. They did happen, they do happen, and they will continue happening as long as the cryptocurrency market continues to exist. To predict when a crypto bubble may burst, track the market trends – there are no 100% known ways to predict crypto bubble bursts, but knowing that crypto bubbles most likely burst as a result of sentiment change helps a lot.
How to Figure Out Whether the Market is in Crypto Bubbles?
To figure out whether the point the market currently is in is a crypto bubble, look at the most popular news outlets and track cryptocurrency news inside of them: crypto bubbles often form straight after popular media outlets (BBC and the like) provide them with a lot of attention and the following are the signs of a potential crypto bubble:
- Media attention: as mentioned, crypto bubbles often form when there’s a lot of media attention surrounding them. Be wary of the sources you obtain cryptocurrency information from and don’t panic.
- Rapid price increase: crypto bubbles are often the result of a rapid and seemingly unexplainable crypto price increase. If you see that the price of a certain coin has increased rapidly and seemingly without explanation, suspect a crypto bubble.
- Speculation: if cryptocurrency is driven primarily by speculation, it may be in a crypto bubble.
- Market news: remember the old adage – if everyone’s investing in something, it’s probably a bad investment. If you see a lot of people suddenly investing into a particular asset, it may be a part of a crypto bubble.
Many factors may contribute to the formation of a crypto bubble – Fear of Missing Out (FOMO) is one of them. There’s no need to educate yourself in-depth about all of them, however, many investors advise suspecting crypto bubbles when you see that the factors mentioned above may drive a rapid and unrealistic price of a cryptocurrency.
If you suspect a crypto bubble, don’t invest into a particular cryptocurrency and wait for the hype to die down. On the other hand, if you are a DCA investor (more about them in upcoming blogs), bubbles aren’t very likely to harm you – in the long run, you will profit regardless.
Summary
Crypto bubbles are a cryptocurrency market trend where a price of any cryptocurrency suddenly and seemingly unexplainably increases, often leading to excitement and/or panic within the market.
Crypto bubbles will continue happening as long as the cryptocurrency market exists, so there’s no need to worry too much about them. If you hold your cryptocurrency, continue to HODL, and if you’re investing, DCA is a smart investing strategy that should net you a profit in the long run.
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Frequently Asked Questions
What is a Crypto Bubble?
A crypto bubble is a cryptocurrency market phenomenon where a price of a cryptocurrency suddenly increases.
How Do Crypto Bubbles Form?
Crypto bubbles often form when hype, speculation, and other factors lead to a surge of crypto prices that are far beyond what you normally see and follow on the market.
Is a Crypto Bubble Dangerous?
No – a crypto bubble is generally not dangerous, but investing during them can be risky. Follow cryptocurrency news and avoid investing when everyone is telling you to – Dollar Cost Averaging (DCA) is a good investment strategy to follow.