Basic Knowledge About Crypto Bubble That You Need To Know.
Maybe you don’t know, in crypto trading, one of the most notable and dangerous phenomena is the Crypto Bubble. Understanding the crypto bubble is essential so you can protect your assets. Let’s learn about Crypto Bubble before investing.
What is the Crypto Bubble?
Crypto Bubble is a term used to describe a situation when the prices of cryptocurrencies increase rapidly and unsustainably, far exceeding their actual value. This is a common phenomenon in financial markets. Especially in new and highly speculative markets like the cryptocurrency market.
Characteristics of Crypto Bubble
- Rapid and Dramatic Price Increases: Cryptocurrency prices skyrocket in short periods of time, often due to speculative sentiment.
- High Price Volatility: High volatility with continuous sharp increases and decreases.
- Hyped Market: Media and social networks hype the potential of cryptocurrencies.
- Participation of Non-Professional Investors: Many new and inexperienced people join the market for fear of missing out on opportunities.
- Highly Speculative: Trading based on short-term price appreciation expectations instead of actual value.
Warning Signs of Crypto Bubble in Crypto Trading
Understanding the characteristics and warning signs of the Crypto Bubble can help investors identify and respond promptly, minimizing risks. Here are a few important signs to look out for:
- FOMO (Fear of Missing Out): The appearance of FOMO. Many people invest simply out of fear of missing out, instead of based on careful analysis.
- Price Spikes: Increases without fundamental reason, based solely on news or excitement.
- The Market is Too Hot: The number of transactions and trading volume increased sharply. Creates heat in the market.
- Excessive Media Interest: Social networks constantly report on cryptocurrencies. This attracts the attention of many people and investors.
- Pump and Dump Signs: The appearance of “pump and dump” groups (pumping prices and then selling off). Attempting to manipulate cryptocurrency prices.
- Investment Advice from Non-Professionals: There is a lot of advice from people without deep knowledge.
- Large Investor Participation: Sudden entry and exit of large investors. Or the organization can cause strong fluctuations.
See more: Capture fluctuation volatility trading professionally
How a Crypto Bubble Works
A cryptocurrency bubble occurs when the price of a cryptocurrency increases dramatically. And then suddenly decreased. Here is how a Crypto Bubble works :
- Inception Phase: A new cryptocurrency is introduced, attracting initial interest and investment.
- Rapid Growth: Prices skyrocket due to interest and investment from many people, stimulated by FOMO.
- Peak: Prices reach record highs, market excitement peaks, and media is positive.
- Crash: Price falls sharply after peaking. This creates panic and mass selling.
- Recovery (Possible): The market stabilizes after the bubble bursts. But prices often do not return to their original highs.
This is the normal cycle of a cryptocurrency bubble. Need vigilance and risk control from investors.
Notes and Lessons Learned in Crypto Trading to Avoid Risks
To be able to trade safely and maximize profits for you. Let’s explore coping strategies and lessons learned below.
Notes and Measures to Respond to Risks in Crypto Bubble Transactions.
1. Important notes before starting to trade:
- Thorough Research: Before investing, research the project carefully to clearly understand its potential and risks.
- Update Market Information: Always monitor news and price fluctuations to adjust trading strategies.
- Diversify Your Portfolio: Invest in multiple cryptocurrencies to minimize risk and increase profit opportunities.
2. Measures to deal with risks when trading Crypto Bubble:
- Set Targets and Use Stop-loss: Before each trade, determine your profit target and the level of risk you accept. Use stop-loss to keep your trade safe.
- Control Your Emotions: In cryptocurrency trading, stay calm and don’t let your emotions control you. Always assess the situation objectively.
- Learn From Experience: Every trade is a learning opportunity. Ask yourself: Why did this transaction succeed/fail? Learn lessons and improve your trading strategy over time.
When the cryptocurrency market is at risk of a bubble. Using dollar-cost averaging ( DCA ) can help minimize the impact of short-term price fluctuations on the total value of your investment. And manage risks in a balanced way. However, this also needs to be combined with an understanding of the market situation to ensure safety and effectiveness.
See more: OKX: open an OKX account – Reputable crypto exchange
Tips for Making Money From Crypto Most Reputable and Safe
To start your journey in this market safely and effectively. Let’s explore some of the most reliable tips below:
- Research thoroughly: Before investing, take the time to research and understand the project. Consider technology, development team, and market potential.
- Diversify your investments: Do not concentrate all your capital in a single amount. Allocate your capital to many different cryptocurrencies to minimize risks and increase your chances for profits.
- Choose a reputable trading exchange: Choose certified and reputable trading exchanges. Exchanges like Binance, Coinbase, and Kraken are often highly rated for their security and reputation.
- Use a cold wallet: To protect your assets from security risks. Use cold wallets to store your cryptocurrencies instead of leaving them on online exchanges.
- Follow your investment plan: Set a profit and stop-loss target for each trade and stick to it. This helps you manage risk and protect your investment.
- Follow market news and analysis: Stay up-to-date on cryptocurrency markets and projects to get an overview and adjust your trading strategy accordingly.
Conclude
Crypto Bubble is a risky phenomenon in the cryptocurrency market. But you can deal with it by understanding and taking preventative measures. Always be careful and research carefully before investing. And constantly improve knowledge and skills in the field of trading. Get started with Crypto Trading and embrace the new opportunities the market brings!
FAQs
How many times has the cryptocurrency market experienced the Crypto Bubble?
The cryptocurrency market has experienced many crypto bubbles in the past. Includes periods such as summer 2017 and May 2021.
How to distinguish between a natural price surge and a Crypto bubble?
One way to distinguish between a natural bull run and a Crypto bubble is to look at the project’s fundamentals. And evaluate the sustainability of price increases. Then check the participation of professional investors.
Is the Crypto Bubble a Temporary Phenomenon?
Yes, it is a temporary phenomenon. With a cycle of price spikes and then crashes. However, its consequences can be long-lasting. And affects the market in the longer term if not handled carefully.
