Crypto bubbles explained – Why do prices skyrocket when people buy crypto?

Bruce Levington
November 30, 2023

The performance of digital assets has drawn the attention ofmany financial historians and experts. Crypto market bubbles, in particular,have become a fascinating yet perplexing aspect of the industry.

Today, we at Voltcoins will dive into the world of cryptobubbles, exploring what they are, and analyzing three key periods—2017-2018,2020-2021 and 2021-2023—to shed light on the volatile nature of thecryptocurrency market.

What is a Crypto Bubble?

A crypto bubble refers to a rapid and unsustainable increasein the price of a cryptocurrency, often fueled by hype, speculation, and afrenzy of buying. This surge in demand inflates the asset's value far beyondits intrinsic worth, creating a bubble that is destined to burst. When thebubble bursts, prices plummet, leaving bulls with significant losses.

Now, let's look at a couple of instances where the cryptomarket experienced bubbles and the subsequent fallout.

2017-2018: The Rise and Fall

In the not-so-distant past, the crypto market witnessed ahistoric boom and bust during the 2017-2018 period. Bitcoin, the pioneer ofcryptocurrencies, soared to unprecedented heights, reaching almost $20,000 inDecember 2017. People flocked to buy crypto, driven by FOMO (Fear of MissingOut) and the belief that the sky was the limit.

However, as quickly as the market ascended, it came crashingdown. By early 2018, Bitcoin had lost over 80% of its value. Altcoins, themyriad of other cryptocurrencies, suffered even more significant losses. Thebubble had burst, and many were left questioning their decisions.

2020-2021: A New Rush to Buy Crypto?

Fast forward to the more recent years of 2020-2021, and thecrypto market once again experienced a surge. Bitcoin hit new all-time highs,and a myriad of altcoins followed suit. This time, institutional interestplayed a significant role as major companies and financial institutionsembraced digital assets. Elon Musk's tweets and the rise of decentralizedfinance (DeFi) further fueled the excitement.

However, the rollercoaster ride continued. The market, onceagain, witnessed a sharp correction, causing significant anxiety among marketparticipants. While crypto enthusiasts argued that this was just a healthycorrection, skeptics pointed to the familiar signs of a bubble.

2021-2023:The Bubble Burst and Market Stabilization

The cryptocurrencymarket experienced a significant bubble burst between the end of 2021 and thebeginning of 2023, characterized by extreme volatility and widespread panicselling. Crypto projects faced scrutiny, and regulatory uncertainties added tothe chaos. Bitcoin, along with other major coins, saw sharp declines in valueas speculative fervor waned.

However, amidst theturbulence, the market underwent a transformative period of consolidation andmaturation. Throughout this year, Bitcoin and select altcoins managed tostabilize, with increased regulatory clarity and institutional adoptionproviding a foundation for recovery.

The crypto landscapesaw renewed confidence, and as of present date, some digital assets have postedsubstantial year-to-date gains, signaling a more resilient and evolved market.

Lessons Learned and Moving Forward

In the wake of these market fluctuations, you must approachthe crypto space with caution and a well-thought-out strategy. While the allureof quick gains is enticing, the risk of being caught in a bubble's burst isever-present. Voltcoins encourages users interested to buy crypto to embrace abalanced and rules-based approach.

As we navigate the volatile crypto market, it's essential toremind ourselves that prices can be driven by speculation and sentiment as muchas by fundamentals. Diversification, risk management, and a long-termperspective are key principles that can help us weather the storms.

In conclusion, the crypto market, like any other, issusceptible to bubbles that can inflate and burst unexpectedly. Byunderstanding the dynamics of these bubbles and learning from historicalexamples, we can make more informed decisions when deciding to buy crypto.

It's not about avoiding the waves but learning how to ridethem wisely. So, the next time you consider jumping into the crypto market, askyourself, "Do I want to buy crypto because of the hype, or do I have asolid strategy in place?"

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