Cryptocurrency is such an exciting thing. But the risk involved cannot be underrated. Well, let’s discuss one of the most important things you must know: what a crypto bubble is.

What is a Crypto Bubble?

Have you seen a balloon? When you blow air into it, it keeps getting inflated. But at a point, it pops. Cryptocurrencies work in a similar fashion. A crypto bubble occurs when the price of a coin like Bitcoin jumps way too high too fast because so many people are trying to buy it. The hype becomes contagious and only then do the prices go sky-high.

But here is the catch: the bubble could burst in the same way a balloon could. And when it bursts, there is a steep and drastic drop in prices.

Why Do Crypto Bubbles Happen?

The answer is simple: everybody wants to get rich. When they hear that someone has gotten filthy rich due to crypto, they will want to join in, hoping to turn a fortune for themselves. This is when the bubble starts manifesting.

New Investors: As more people do engage in the game, prices usually get upped.

Fear of Missing Out FOMO: If everyone else is buying, they feel that they should be jumping in too.

Media Hype: Information moves so fast that everybody rushes to invest.

Bandwagon Effect: If everyone else is doing it, it must be a good idea.

Crypto Bubble History

Bitcoin has witnessed bubbles. At one point, from just about $600 in early 2017 it limited out nearly close to $20,000, only to drop down to $3,000 in early 2018.

Signs of a Crypto Bubble

How do you tell if you are currently in a bubble?

Fast Price Increase: When price shoots up for no obvious reason.

Wild Swings: Prices go up and down wildly.

Large Trading Volume: Lots of buys and sells happen simultaneously.

How to Handle a Crypto Bubble?

Don’t panic. Here’s what you can do when you’re dealing with a crypto bubble:

Diversify: Don’t put all your money into one coin. Diversify your holdings across a variety of coins.

Watch the market: Pay attention to the trends. Try to keep up with what’s going on with in-house tools like the fear-and-greed index, which can make evident whether emotions are becoming extreme for fear or greed.

Stick with your plan: Don’t change your plan simply because the market has dropped, or otherwise, you should focus on your income goals.

If the bubble bursts

Don’t panic if the bubble bursts. Take a deep breath. Here’s what you can do:

Rebalance: Check your investment portfolio. This ensures that you are not at too much risk of your portfolio being compromised.

Learn from it: Review what happened so that the next time you’re in a similar position, you can make a better decision with the knowledge you gained from it.

Opportunities: After a crash, prices might generally be cheaper. You may find good opportunities to buy, but always do your research first.

FAQs

How can I tell whether it’s really a bubble or not?

Turn your eyes to forums to see whether there are any unusual jumps in price, as a lot of media commentary starts whispering something about how someone will happen to unveil or reveal direct engagement into it. If it feels like everybody is legitimately multi-catching coining in these sectors, it’s probably quite a bubble, if at least for now.

Are cryptos still good investments even when the bubble has burst?

Yes. After a bubble, there is still hope that it might recover. Before investing, be sure you’re aware of the risks involved, however.

Will crypto bubbles go on forever?

Of course, yes, most likely. The crypto world is still a young market. In a period such as this, there will be ups and downs; however, it has often brought strength over time to their industries and market itself through each bubble.

Adventures do spur. In the good quiet and during a panic, do ensure smart introduction, core where with panic.