Price Bubble

A situation that occurs when an asset's market value is far higher than it's actual worth, making a sharp drop in price imminent.

A price bubble can occur for any tradable item that has a certain supply and demand. Notable examples include anything from Beanie Babies (the collectible toy that soared to popularity in America during the 1990’s) to the notorious Tulip Bubble hundreds of years ago, to something as serious and more immediate as the Housing Crisis during 2008. 

A price bubble occurs when demand outpaces supply supply. The faster the demand by more and more people, and the more limited the supply, the bigger the price bubble grows. 

Cryptocurrencies have experienced numerous price bubbles. Every cryptocurrency (besides stablecoins) has experienced one. They often occur around hype in the news. A coin might profess to have made a breakthrough in some technology field or another, the news will catch on, and soon people around the world are buying.

Cryptocurrencies are more prone to price bubbles than other assets simply because they are globally accessible. A housing bubble is limited to the country or region it grows within. Same thing with stocks -- Apple being listed in the U.S. for example. 

Bitcoin and other cryptocurrencies are global. People from the UK to Zimbabwe can buy them. And when news spreads, more people jump on, even though there is a limited supply. This causes price bubbles.

Price bubbles pop when demand dries up. Then, people who expected the price to keep going up, get scared and start selling. The trend then reverses and, as more people panic sell, more supply enters the market. The price continues to crash until all the panic sellers get rid of all their coins.

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