Price Bubble

What does prince bubble mean?

An economic cycle in which the price of a security or asset will surge unsustainably, despite a lack of support by fundamentals, and usually driven by investor exuberance. This is followed by a crash as a selloff occurs when there are no more investors willing to buy at the inflated price. This price bubble is usually caused by speculation and has been observable in Bitcoin’s past prices. When done deliberately, this is known as a “Pump and Dump”.

Bubbles form in every asset class and business sector and can be due to either an actual change, or simply a paradigm shift. In the case of cryptocurrencies we are looking at a paradigm shift, similar to the dot-com boom and bust in the late 1990s. Bubbles almost always occur in areas of high growth, and they burst once investor confidence disappears.

The very first recorded occurrence of a price bubble occurred in Holland in the 17th century, when the price of tulips exploded due to speculation. This bubble only burst when a large sale was planned, but the buyer failed to show. This one act caused investor confidence to drop as they realized that the continual price increases were unsustainable. Panic ensued and by the end fortunes were destroyed as the price of tulips dropped by more than 90%.