Cryptocurrency bubbles have hogged the headlines of this world for a decade now, unfolding the histories of booms and subsequent busts of Bitcoin, Ethereum, and countless other cryptocurrencies. To date, the question remains what cryptocurrencies are, what causes crypto bubbles, and how investors can make smarter decisions in this volatile landscape. Let’s dig into the history of crypto bubbles, why they occur, and how investors can navigate these waters.
What Are Crypto Bubbles and Why Do They Happen?
Essentially, at the heart of each boom in a market is a bubble. A crypto bubble arises when the price of a cryptocurrency shoots way above its intrinsic value due to speculation. FOMO – excitement and fear of missing out among investors sets it off, driving prices more and more upwards. Once this reaches its climax, and the investor realizes that the asset is overvalued, all hell breaks loose, and the price falls drastically.
Crypto bubbles usually pattern like classical financial bubbles. First, there is a much-hyped technology like blockchain that promises and inspires the proselytes. The early adopters go in; media gives them coverage, and more and more people invest in it until prices shoot upwards. For a brief moment, everyone thinks that the prices are nowhere but up. But like every bubble, it pops eventually.
The History of Crypto Bubbles: Notable Examples
The Bitcoin Bubble of 2017
The most celebrated cryptocurrency bubble was that of 2017, when the price of Bitcoin jumped from less than $1,000 to almost $20,000 within one year. This rocket-like jump was largely fueled by speculation, media attention, and word that someday cryptocurrencies would replace all traditionally issued money. Early 2018 saw the collapse of that bubble, with the price of Bitcoin plummeting to as low as about $3,000 by the end of the year. Although Bitcoin has fully recovered, this bubble is an excellent example of how fast the prices may increase and drop in the cryptocurrency space.
The ICO Frenzy
Between 2017 and 2018, the next big thing in the crypto space was known as Initial Coin Offerings (ICOs). Here, startups would raise billions by selling tokens with a promise of the most revolutionary new platforms and technologies. Folks were drinking money into ICOs hoping to catch some early action on the “next Bitcoin.” But most of them were scams or failed projects, giving birth to the ultimate market crash. This was the year of the ICO bubble burst in 2018 and left many investors holding worthless tokens.
The Dogecoin Surge of 2021
Dogecoin, a cryptocurrency toiling around as a joke, surprised the world with an unexpected surge at the beginning of 2021. Because of social media hype and influential endorsement by Elon Musk, among others, Dogecoin price skyrocketed over 12,000%. However, like most bubbles, it could not be sustainable. By mid-2021, the price of Dogecoin had declined by over 70%, serving as a simple reminder to investors that such crypto bubbles are quite volatile.
Why Do Crypto Bubbles Burst?
Several reasons might cause crypto bubbles to burst, but primarily because prices are driven far higher than what the asset is worth. This phenomenon causes more and more investors to buy shares in the asset as the price continues to rise, but eventually, people stop buying and want their money back since there aren’t enough buyers willing to pay such inflated prices. This is when the early investors will start selling for profits which sends a sort of ripple effect where each sale pushes prices further down, causing panic, and the bubble bursts.

Regulatory interventions are also another reason that leads to the bursting of crypto bubbles. Both governments and financial institutions step in whenever they fear that speculation is getting too out of control. Chinese authorities banned cryptocurrency transactions in 2021, which subsequently led to a drastic drop in the price of Bitcoin.
What Investors Can Learn from Crypto Bubbles
1. DYOR (Do Your Own Research)
The biggest take from crypto bubbles is the necessity of researching before you buy. Most people buying in such a case come in based on hype and do not necessarily understand neither the technology nor the market. It’s very crucial that one finds out about the use case, the development team, and market potential before one goes to invest in any cryptocurrency.
2. Resist FOMO
FOMO is one heck of a driver of crypto bubbles. In the price rush, an investor is afraid of missing out on monstrous gains. But jumping into the bandwagon for the rising prices will turn out to be a cacophony in case of its bust. The game requires being level-headed and not acting based on frenzy.
3. Portfolio Diversification
Diversification is the other lesson. People holding their money in one asset can lose everything when the crypto bubble bursts. It is prudent to hold different asset classes, including stocks, bonds, and even different cryptos, in your portfolio to reduce the risk of making colossal losses. Go and Read here for more details.
4. Take Profits Along the Way
At the peak of a crypto boom, it’s quite natural to hold onto hopes for even bigger gains. After all, the wise investor knows how to take profits along the way. Selling a part of your assets while the boom is on ensures locking in gains rather than losing everything when the bubble bursts.
5. Be Prepared for Volatility
Cryptocurrency markets are very volatile, and this is probably best exemplified with the scenario of bubbles. Prices will go upward and then down in a mere matter of hours. Any investor must be on the alert and abreast of changes to consider and have the ability to withstand such changes.

What is a crypto bubble?
A crypto bubble develops when the price of cryptocurrency spires above real value due to speculation, only to crash upon bursting of the bubble.
2. How safe can one get from a crypto bubble?
Some of the steps that can ensure safety from falling into a crypto trap include thorough research, discouragement of FOMO, diversified investments, and taking profit when necessary with forward preparation for volatility.
3. Why do crypto bubbles burst
Crypto bubbles burst when prices become unsustainable and no other buyer is willing to pay such inflated prices. Panic selling usually follows this, where prices plummet sharply.
4. Can crypto bubbles be predicted?
Although the exact timing of a bubble cannot be predicted, signs that suggest one’s existence include high rates of price increases, media hype, and huge speculations by investors.
5. Are all cryptocurrencies prone to bubbles?
Not every cryptocurrency offers a bubble, and it is most prevalent in the smaller or highly speculative coins which react very much to mere market hype and speculative value.

Conclusion
Bubbles are inescapable in this crypto market, and though they may cause considerable losses to the investors, they also serve as very valuable learning for the investors. Understand the patterns of the formation of these bubbles, stay abreast of current information, and make rational decisions. Always invest wisely, do not let emotions rule your moves, and be prepared to defend any bad situation that may come about from another potential bubble. Learn from history, make informed decisions, and thrive well on cryptocurrency investments.