What are cryptocurrency bubbles and how to identify them?

Bitcoin has just broken $64,000, the highest figure since 2021. But here comes the uncomfortable question we all ask ourselves: are we facing another crypto bubble ready to burst?

The Anatomy of a Crypto Bubble

Unlike traditional assets, most cryptocurrencies do not have income streams or tangible assets. Their value depends almost 100% on speculation and market sentiment. A crypto bubble is exactly that: prices disconnected from reality, driven by FOMO (fear of missing out on profits) and collective euphoria.

Does it sound familiar? Just like the dot-com bubble of the 90s or the mortgage crisis of 2008, but in digital version.

The phases that always repeat

1. Initial hype: A promising project with innovative features emerges → first investors come in
2. Unbridled speculation: People see quick profits → more money enters → prices rise further
3. Viral media coverage: Influencers, news, social media explode → massive FOMO → more inexperienced investors enter
4. Irrational exuberance: Prices soar to unsustainable levels, completely disconnected from real utility.
5. The peak: The flow of new buyers runs out or bad news emerges.
6. The crash: Panic selling → prices drop dramatically → massive losses
7. Recovery: Weak projects die, strong ones rebuild

Historical bubbles you should know about

2011: Bitcoin jumped from cents to ~$30 in months, then collapsed to single digits.

2017-2018: BTC reached nearly $20,000, but fell to ~$3,000 in a year. At the same time, the ICO fever (Initial Coin Offering) brought in thousands of projects with no real product → 90% were scams.

2021-2022: NFTs were sold for millions, Bitcoin reached $68,000. Both collapsed the following year. The trading volume of NFTs fell by 90%.

The warning signs you need to watch for

• Extreme price increases in days/weeks: A coin doubling or tripling in value quickly usually indicates a bubble.
• Wild volatility: Oscillations of ±20-30% within hours, typical of speculative trading
• Trading volume skyrocketed: Huge buy/sell orders suggest emotional decisions
• Disconnected market capitalization: If the total value of crypto rises beyond what real adoption justifies, red flag.
• Fear and Greed Index at extremes: Very high readings = irrational euphoria; very low = panic
• Increase in margin trading: More leverage = more speculation, more risk

How not to go broke if a crash happens

Reduce exposure: If you see the previous signals, sell part of your positions. Take profits strategically.

Stay informed: Read news, follow on-chain indicators. Don't be the last to know.

Consult experts: An experienced advisor is worth more than chasing advice from Twitter.

Think long term: Bubbles burst, but crypto is still here. The 5-10 year vision is different from the 5 day vision.

Use stop-loss: Automate the sale if the price drops by X%. Protect your capital.

Discipline over emotion: Impulsive trading kills portfolios. Stick to your plan.

Can you make money during a bubble?

Yes, but it's risky. Those who win are the ones who sell early. The problem: no one knows exactly when it bursts. What we do know is that bubbles cause massive losses for most.

The important thing: Bubbles are lessons. They teach us why due diligence, understanding technology, and investing with a cool head are non-negotiables.

The million-dollar question? Is Bitcoin a bubble right now?

It depends. Some say that its value proposition (decentralized money, store of value) justifies the price. Others see signs of a bubble. The reality: we will only see the answer in retrospect.