Crypto Bubble: Lessons and Risks in the Market

The Dotcom bubble was a historic event that significantly impacted the stock market and the global economy. Similarly, such events can occur in the cryptocurrency world. Below is the comparison between the Dotcom bubble and challenges in the crypto industry, along with lessons for investors.

1. What is a Crypto Bubble?

A crypto bubble occurs when the prices of cryptocurrencies increase too quickly and unrealistically compared to their true value. Similar to the Dotcom bubble, a crypto bubble mainly involves projects and cryptocurrencies that do not yet have a tangible product or value but attract many investors due to excessive expectations.

2. Characteristics of a Crypto Bubble

•  - Rapid Growth but Unsustainable: Just like during the Dotcom era, during crypto bubble phases, the value of cryptocurrencies can skyrocket, but without strong fundamental factors, this growth will not be sustainable.

•  - Participation of New Investors: In both cases, investors lack sufficient knowledge about the market and focus only on the potential for high profits, leading to a rush of participation, thus creating a financial bubble.

•  - Collapse: A crypto bubble can burst quickly when projects are unrealistic, lack transparency, or are attacked (e.g., exchange hacks). Investors begin to withdraw their funds, and the value of cryptocurrencies can plummet, leading to significant losses.

3. The Formation of a Crypto Bubble

Crypto bubbles typically form from factors such as the rapid development of projects without solid foundations, venture capital investments in large funds that ignore practical factors, and irrational price increases in cryptocurrencies. Similar to the Dotcom bubble, investors pour money into new crypto projects with high-profit expectations without considering the risks.

4. The Bursting of the Crypto Bubble

Similar to the collapses during the Dotcom era, a crypto bubble can burst during times of intense volatility, such as interest rate hikes or major hacks on exchanges, causing the value of cryptocurrencies to plummet.

5. Economic Impact of the Crypto Bubble

A crypto bubble also has profound effects on the global financial economy, similar to the Dotcom bubble, causing billions of dollars to vanish, and many investors suffer heavy losses. Companies in the crypto industry may also go bankrupt or merge, severely affecting the market's foundation.

6. Investment Lessons from the Crypto Bubble

•  - Focus on Fundamentals: Investors need to focus on the fundamental factors of a cryptocurrency, such as its real-world application in the economy and liquidity, rather than just relying on short-term price expectations.

•  - Manage Expectations and Risk: Just like in the Dotcom market, investors need to manage expectations realistically and have a risk management strategy, especially when participating in emerging markets like cryptocurrencies.

•  - Assess Project Sustainability: Blockchain companies must ensure they have a sustainable business model and the ability to generate long-term profits rather than just seeking short-term growth.