It’s often claimed that cryptocurrencies are in a bubble, and that this is causing the volatility we’re seeing in the markets today. But what exactly does it mean for cryptocurrency prices to be in a bubble?
And if that’s true, why do so many bubbles keep forming?
This article will explore these questions, look at how we can know when cryptocurrency bubbles are forming, and examine why
– despite the problems they cause – so many crypto bubbles keep on appearing.
Where To Invest Crypto Bubbles
So what can we do about it?
There isn't much to do, unfortunately.
There is no way to predict when a bubble will start or how long it will last.
The only thing we can do is try to buy as soon as possible in the bubble and sell before the bubble bursts.
Of course, this means buying at artificially inflated prices, but that's the nature of bubbles.
In these cases, having a more technical understanding of cryptocurrency may help give an indication of when the new trend is unsustainable because it sounds too good to be true
- but then again if something doesn't sound too good to be true, it probably is. R!
How To Invest In Cryptocurrencies
Some people invest in them to make quick gains and profit off the crypto bubble, while others are concerned with the future of their investments. I've compiled a simple guide that answers the most basic questions on investing in cryptocurrencies
so that you can form your own opinion on whether or not it's worth the risk.
- 1) Is this investment legit?
- 2) How do I get started?
- 3) What are the risks of investing in cryptocurrencies?
- 4) Is cryptocurrency trading safe for investors?
- 5) How do cryptocurrency prices fluctuate and how does it affect my portfolio performance
- 6) Does anyone know where Bitcoin will go from here?
- 7) Who knows if the blockchain technology will take over the world one day?
- 8) Will cryptocurrency replace traditional currency as we know it?
- 9) What should I do next if I want to keep up with this trend but still be cautious?
- 10) Should I worry about crypto bubbles popping or can't they be predicted before they happen?
How do crypto bubbles work?
When a project becomes overvalued, meaning its market cap is worth more than what the company is really worth, there's a sentiment that it's more likely to increase in value as demand rises.
This surge of investment activity propels the asset even higher and investors become convinced they're holding onto something valuable. In this situation, when people start to buy from the belief that others will want to buy from them too at an even higher price, it creates a bubble.
The hope for those trading in crypto bubbles is that the bubble never bursts because when the selling begins, prices can come crashing down very quickly.
But does crypto actually have economic bubbly behavior or is there some other explanation for these price swings?
What does a bubble mean in crypto?
A crypto bubble, in the simplest of terms, is a rapid increase in prices followed by an equally rapid decrease. Bubbles are created when investors do not accurately value the worth of an asset, often due to hype or FOMO
Bubbles can be difficult to avoid and predicting them can be tricky as they are so volatile. Some of the most popular bubbles seen recently have been Tulip Mania which peaked in 1637 and Dotcom bubble that lasted from 1995-2001.
The recent bitcoin boom has people wondering if we're about to see another one of these tragic events.
For example, Bitcoin's price peaked at around $20K on December 17th 2017 and dropped down below $7K on February 5th 2018.
That's a 60% drop! Now some economists believe that this recent dip may just be the start of another bitcoin bubble burst and it’s only going to get worse before it gets better.
Will the crypto bubble pop?
Since the late 1990s, a series of bubble have plagued the world's largest markets.
The South Sea Bubble and Tulip Mania, in 1720 and 1637 respectively, were two examples of irrational price swings in an asset bubble.
Asset bubbles like these occur when the demand for that asset exceeds the actual value of that asset.
A lack of liquidity causes people to purchase more of this commodity with little or no consideration for its true worth.
In a classic bubble economy (such as many pre-crypto bubbles), people often invest a great deal in one asset without even knowing what it actually is, just based off its potential future value.
How do I get bubble crypto?
The crypto bubble is not a natural part of cryptocurrency
, and it comes from people holding on to tokens in anticipation of their value skyrocketing.
The problem with this theory is that the crypto market is young and vulnerable to bad actors.
With no governmental regulatory body, it's difficult to stop this happening, but there are many steps we can take to try and do so: some being more practical than others!