How do I know if a cryptocurrency is in a bubble?
Are you currently worried about the cryptocurrency investment plummeting and losing your money? That is what could happen if a cryptocurrency you have invested in is in a bubble. There are ways to know if this will happen which could save you a lot of money.
First, you must know what exactly a bubble is. A bubble is when the price of a stock or currency is currently worth more than it deserves. A stock or currency skyrockets so much that is reaches a price that it cannot maintain. Usually, when it stops increasing in value, it plummets dramatically. This causes lots of investors to lose lots of money if they do not sell fast enough. They either sell at a loss or have to hold (HODL) This could happen to you if you are not educated by knowing the signs of a currency in a bubble, or if you do not act fast enough.
On the other hand, many investors lose out on their investments because they falsely predict a bubble, dump their coins, and the market proceeds to increase. You must have a natural intuition to know if a bubble is about to burst and if you should exit the market.
Know the Signs of a Bubble – Inflated Value
There are multiple signs leading up to the price plummet of a currency in a bubble. Knowing what these signs are can potentially save you money.
The first noticeable sign of a is a questionable increase in popularity. If a currency is currently worth what it should, people will not show the concern that they normally should. It’s a ‘false hype’. When the popularity of a coin starts to boom and the prices start rapidly increasing out of nowhere – when it had a steady increase rate before – that this is most likely a bubble.
However, that’s not always the case. For example, a massive positive news announcement can cause a quick ‘realization of value’. For example, if a major company such as Amazon, Ebay, or Wal Mart announces that they are adopting the functionality of a cryptocurrency, investors suddenly see the coin as being worth far more valuable than it is now. Yes, this value is based on future speculation, but at the very least it’s backed by a legitimate reason and practical application.
If you do see this ‘false hype’, you should be more cautious and begin checking in on the prices more often. A good way to see if this sign is real? Check if there is a real reason that the prices would change like this. An example of this could be a software update or partnership. The next noticeable sign is when the amount of sellers start to increase and the amount of buyers start to decrease. When a currency is not really worth what is should be, obviously sellers would try to keep their coins so that they could make more money, and buyers try to buy the coins so they could make a profit. When a cryptocurrency is in a bubble, the amount of sellers will increase and the amount of buyers decrease because the currency is no longer worth what it should be worth anymore.
What to do if you realize your investment is in a bubble
If the currency you are investing in, is in a bubble you need to act fast. The currency will crash is price very rapidly so if you own this currency try to sell it as fast as you can do that you do not lose your money. If you are trying to buy this currency do not do it. You will lose your money and very fast.