Crypto bubbles indicate the rise in prices of a cryptocurrency over time without any fundamental reason. Price rise during a crypto bubble indicates that these high prices would not last forever and shall decline rapidly causing heavy losses to investors. The bubble is often representative of the rapid decline of prices, indicating that the high value of the asset might soon “burst” or fall sharply at any point in time.
Crypto bubbles are often associated with the investors’ fear of missing out. Crypto, despite being a new asset, has given great returns in a short span of time. Naturally, every investor wants to ride that bandwagon which eventually leads to an overbought state of the asset, making it overpriced for the value it provides. In such cases, a bubble is formed, which indicates that the asset might fall sharply in price once the investors realize that the asset deos not have much to offer. When the price continues to rise, the early investors might book their profits and exit the market, which leads to an increase in supply but a lack of demand, thus causing the price of the asset to fall. This might put the newbie crypto investors in panic as well, causing them to leave the market.