You can’t really go more than a few minutes talking about crypto before someone mentions the “B” word. The dreaded and often talked about bubble. And while many people talk about the bubble, they just as often talk about the bubble popping, or when will it pop. However, I think that looking at markets in terms of a “bubble” and “popping” sets you up to not understand what really happens in a bubble because they don’t really pop at all. So looking out for a pop is sort of like looking in the wrong direction while watching a sporting event, and then turning back to the action after the big play already happened.

I think we all know what a bubble is. It’s a rapidly growing market where at times the profits almost seem too easy. Everyone you know seems to be talking about it and people start dreaming of a better life that is just within their grasp.

These aspects of a bubble we all know. But it’s the “popping” of the bubble that I have a problem with. Bubbles don’t pop, they don’t suddenly deflate as the term would suggest. Instead, bubbles undergo a chain reaction of events that start well in advance which slowly cause the fuel that powers the bubble to run out. And it is this aspect that you must be watching out for if you want to prevent being the one holding the bag when the chain reaction reaches critical mass and the market then “pops”. You must be looking out for when the fuel that powers the bubble, or the money, is slowing down and is never to return. This is the beginning of the chain reaction that kills the bubble.

So let’s look at how that works. When the chain reaction begins that will ultimately kill a bubble, it usually looks like a temporary downturn, and often times it is. Usually the market cools off a little or there are signs of a cool down. Some people claim it’s the bubble popping, but most people in the market have never been burned, so they keep on investing and the bubble starts growing again. This cycle may happen several times.

But the next step is when the chain reaction really builds steam and becomes unstoppable. You have more and more people who are sitting on huge profits, but profits they have not realized yet since they are still in the market. Each little dip makes them more and more nervous. And instead of looking for a reason to buy more, like in the early days of a bubble, they are now on the lookout for signs to sell. They are more concerned with taking their money out of the market then putting money in. And when you look for a reason to sell, eventually you will find a reason, whether it’s real or not. To put this in terms of crypto, people go from researching white papers to researching regulatory news and actual development from the teams they have invested in to see if the progress is real. You can almost look at it like the end of a relationship, you start looking for reasons to leave instead of reasons to stay.







Also, during this time, since people are looking to sell, the money flowing in starts to slow down, and that’s the fuel for the bubble. As these two things start happening, it becomes much harder to attract new money since the market is now just sort of coasting along or the gains have become pretty much inline with other investments.

These forces push and pull together for a while until they reach that critical mass point, where they all start pushing in the same direction, and this is the point when the bubble starts to deflate and nothing will reverse it.

Now, the reason I feel it’s important to understand all of this is because if you think a market bubble will “pop” it puts you in the mindset that it just happens suddenly and without warning, and you can’t predict it. But if you instead look at it closely, you see that a bubble popping is a chain reaction of events, events that take place slowly over time. And they are events you can watch out for to protect yourself.

But just remember, bubbles need fuel, and always be on the lookout for that fuel source and how strong it is. Always be asking where the money is coming from, and where it’s going to be coming from. Next is market sentiment, this is harder to gauge with numbers and news, and it’s more of a feeling. Are people sitting on profits, are people talking about cashing out or investing more money? These are all investor signs to be on the lookout for.