What is a cryptocurrency bubble

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This is the final stage, where the crypto bubble bursts, havoc is at its highest, and investors start pulling back the money, trying to retain most of their profit and, in the worst cases, the principal amount. Prices falter rapidly, and at last, the bubble leaves many people with losses. How to Identify a Crypto Bubble? You can define bubbles in crypto by anomalous movement in the price and the extent of volatility.

To do this, you need to understand the sentiment in the market and the psychology behind the market behavior. In crypto, this can be a complex task as compared to the traditional stock market. In traditional markets, you can read the changes in the market forces with their demand and supply and define the reason behind the price movements. However, for cryptos, you need more measures due to their dynamic pricing, such as investor triggers, price trends, social media analysis, etc.

For example, a hike in crypto value due to a viral social media post can be an indicator of the displacement period, where everybody is just excited to see change and want a taste of it. Once you learn to fan out the fluke from a genuine increase or fall in price, you can prevent yourself from entering the bubble and make decisions that bring long-term profits. Sometimes crazy valuations of crypto startups or exchanges and their funding also lead to bubble-like situations. We can take the Bahamas-based crypto exchange FTX, for instance.

This can result in a market frenzy and may end up like the bubbles we talked about at the beginning of this article. The only solution here is to ask why the prices of the cryptos you want to invest in are rising, find reasons to support that rise via technical, fundamental, and sentimental analysis, and if you find it genuine, go for the investment. However, this is not new. If we take examples of past crashes of Bitcoin, we can see a pattern.

Crash of April Bitcoin became quite popular in around, with a huge number of investors investing heavily in this asset. However, the surge was unexpected, and a Japan-based exchange called Mt. Gox failed to facilitate such a volume. The reason? Nothing concrete, just market frenzy, and heavy sell-offs. This reflects how the crypto market can drive you to invest in high prices with FOMO, impacting your returns.

The pattern for other cryptos is more or less similar to Bitcoin. Thus, rather than saying that we are in the crypto bubble, it seems like the bubble has already burst with the market valuation slump. However, according to some experts, the current value of different cryptos still lacks core fundamentals, and we might be in a bubble. What Is the Future of Cryptocurrency?

Many governments, like Hong Kong, the U. S , etc. El Salvador even declared Bitcoin as a legal tender in September However, some countries are still suspicious of its effect on the economy. For example, countries like Bangladesh, Nepal, Bolivia, Morocco, etc. While in India, the government is figuring out rules and regulations that can develop a safe ecosystem for the usage of cryptos, as well as investing in the same.

There are no doubts about the future of innovative implications of cryptocurrencies for expanding the payment landscape globally; they also serve as a great alternative investment option. However, what the future of cryptocurrency holds cannot be predicted precisely, given the current predicament over a crypto bubble, tightening interest rates, and positive recognition by global governments. As an investor, all you can do is include cryptos in your investment portfolio according to your goals and risk appetite and do your homework before making an investment decision.

Conclusion There is no proof to confidently say that we are in a crypto bubble right now. However, if we are, you need to be mindful of each step that you take while investing. Follow news updates from reputed channels, and learn to read market sentiments.

While you can not predict a crypto bubble, you can always safeguard your investments, so focus on that part. In crypto, when a bubble bursts, people see a sudden fall in the value of the crypto asset that was at an all-time high. This occurs when the value of cryptos increases without any fundamentals to back it up.

Once the bubble bursts, investors indulge in massive sell-offs at losing rates, which leads to a market crash. What Happens When a Bubble Bursts? When a bubble bursts, investors panic. Crypto whales would have already sold off their positions.

But during a burst, retail investors would also follow that pattern of whales and sell off their holdings. The result is market contraction and loss of valuation. Simply put, it will take time to complete such a trade to satisfy the South Korean demand. Historically, Bitcoin benefits each time a national government recognizes the cryptocurrency. This means, another location where the virtual currency can be freely used or used with some limitations.

In the case of Japan, the country passed a number of laws and regulations that will apply to Bitcoin, as well as other cryptocurrencies. This development led to the heightened interest in Bitcoin by a lot of world famous Japanese businesses. Money Transfer Using Bitcoin If you often send money to a foreign country, you would know that the process can be nightmarish. Aside from being notoriously slow, sending money via MoneyGram or Western Union is very expensive.

Thus, it is quite easy to understand why Bitcoin is the ideal currency to use for transferring money anywhere in the world. This scenario has already happened, and a lot of companies are now offering money transfer services using Bitcoin at much friendlier rates coupled with superior service. Asia dominates the money market transfer, while North America contributes only a small portion of the market. One reason for this is the fact that the US dollar is the dominant currency worldwide, and transferring dollars and other currencies might cost less than transfers between non-US dollar currencies.

This results to the inability of Bitcoin-based services to undercut with the US dollar, unlike other currencies. At present, it appears to be a bit limited in the global market. Most likely, this is because the virtual currency is still in its early stages. One thing is sure, however. More and more people are getting interested in the cryptocurrency for a number of different reasons. This triggers the steady climb of the Bitcoin price on the market.

Similar to many other currencies and assets like stocks, Bitcoin has started to experience crashes, booms, and bubbles. The ultimate and most important question that comes to mind is: can Bitcoin survive all these?