Let’s get to know what a crypto bubble is! Crypto bubbles can happen to any crypto asset, you know. See more in the following article!
What is Crypto Bubbles?
In Indonesian, a bubble can be interpreted as “bubble” and “bubble.”
So what are crypto bubbles? The crypto bubble is related to crypto assets, where the price at a specific time soars higher.
However, a significant price increase in the crypto asset will be followed by a rapid decline in value which can result in heavy losses for investors.
The term bubble or crypto asset bubble is a marker that the price of a crypto asset can break, break, and sink at any time, either soon or in the next few months.
This bubble phenomenon in crypto usually occurs due to market behavior lulled by the Fear of missing out (FOMO). This causes asset prices to rise and fall quickly and sharply.
Throughout this bubble phase, assets will trade in a price range far exceeding their intrinsic value.
Why Does Crypto Bubble Happen?
Crypto bubbles can occur when investors sell their crypto assets at high prices.
It is also a way to earn large amounts of profit.
In this case, several things make a crypto asset bubble happen. Here are some of them.
1. Elon Musk’s tweet
One of the causes of the crypto bubble is a tweet from Tesla CEO Elon Musk.
A person who has a significant influence in the crypto world, Elon Musk, once said that Bitcoin is one of the most promising cryptocurrencies.
Elon Musk even bought 1.5 billion worth of Bitcoin and announced that Tesla, his electric car company, accepts Bitcoin for car purchases.
However, less than two months since the announcement was made, Elon Musk tweeted that his company no longer accepts Bitcoin as a means of payment.
The reason, according to Elon Musk, is that Bitcoin has a destructive impact on the environment.
Since then, Elon Musk then switched to Dogecoin, and an entire article about Elon Musk’s Doge can be seen here.
It should be noted Elon Musk’s tweet about Bitcoin later became the cause of the decline and fall of the crypto market to hundreds of billions of dollars.
2. Not All Governments Accept Crypto
Another cause of the bubble phenomenon in crypto is that not all governments accept crypto.
It is known that several state governments do not want and are even reluctant to accept crypto because these digital assets are considered to damage the value of the country’s currency.
One country that rejects crypto in China. After banning central banks, several other banks, and online payments from accepting crypto, China has also successfully disrupted the crypto market.
Apart from China, Turkey also emphasizes that it does not accept crypto and even prohibits payments using crypto.
Apart from that, a series of countries, such as Ecuador, Bolivia, Algeria, and Nigeria, have effectively banned digital currency.
It is known that the ban in these countries has succeeded in driving Bitcoin and other cryptocurrencies to their lowest point.
Crypto Bubble Phenomenon Throughout History
Crypto assets such as Bitcoin, Ethereum, Cardano, and others were on the verge of a bubble in May 2021.
As for the crypto asset bubble, it will burst shortly, predicts the founder of Ethereum, Vitalik Buterin.
Crypto investors are also worried because the value of the assets invested is decreasing.
Even though the prices of several assets had skyrocketed, those assets suddenly sank in an instant, resulting in huge losses.
At the end of May 2021, the Bitcoin price had fallen 48% to reach Rp. 499 million.
However, this figure is quite far from the record high price on April 14, 2021, which is around IDR 926 million.
Several other crypto assets, including Ethereum, also followed the collapse in the Bitcoin price.
It is known, at the end of May 2021, the value of Ethereum was reduced by 38.48% in just 24 hours.
The following assets that also fell significantly were Cardano which fell by 35.83%; Binance Coin, 52.77%; Dogecoins 34.71%; XRP 44.68%; and Polka-dot (DOT), by 55.21%.
Tips for Avoiding Crypto Bubbles
How to avoid crypto bubbles to minimize losses? Several things can be done, namely as follows:
1. Set limits on the amount/value of assets that can be invested
Besides that, you also have to have a limit on how many crypto assets you can buy.
If you offer cheap crypto assets, but the number of your purchases is already within the specified threshold, then you should not be tempted to buy more assets.
2. Diversify the crypto portfolio
With diversification, it means you don’t invest in just one just asset.
So, if one of the assets goes down, you can still survive on other assets.
3. Avoid panic buying when prices are low
This is important because, in essence, your assets are not lost. On the other hand, you should invest in crypto for the long term by keeping your money in the market for years until you get the best-selling price.
4. Implement an automatic purchase mechanism
In this case, this mechanism will make you buy assets repeatedly so that you also avoid the stress of correctly determining the time of buying and selling manually.
Conclusion
In conclusion, crypto bubbles are a phenomenon related to crypto assets, where the price of crypto goes higher at a specific time.
However, the significant price increase will be followed by a decline in value so quickly that investors lose money.
Usually, Fear of missing out or FOMO is the cause of the bubble phenomenon in crypto.
Some of the things that made this crypto bubble happen, among others, were Tesla CEO Elon Musk’s tweets regarding Bitcoin.
Apart from that, this crypto asset bubble also burst because not all countries—one of them China—did not accept crypto assets as a means of payment.
Do you understand now about the crypto bubble? So, to avoid this one phenomenon, you should update your knowledge at Indodax Academy.
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