Educational Byte: What Is an Economic Bubble and How Does It Affect Crypto?

Economic bubbles occur when the price of something rises much higher than its ‘actual’ value. One of the earliest examples is the Dutch Tulip Mania of 1637. The U.S. housing bubble in the 2000s was a major factor that led to the 2008 economic crisis.

Let’s start by saying that determining the “real” value of an asset isn’t easy, and the free market, made up of people with quite subjective views, isn’t always helpful —sometimes, quite the opposite. If enough people believe, for any reason (imaginary or not), that a certain asset’s price will go to the moon and start buying massively, then it could happen. The problem comes when those same people start to panic because it’s never enough. That’s the moment when we have economic bubbles ...