Can you explain how the greater fool theory relates to the concept of speculative bubbles in the crypto market?

1 answers

• EsosekMar 16, 2024 · 2 years ago
  At BYDFi, we understand the connection between the greater fool theory and speculative bubbles in the crypto market. The greater fool theory is a psychological phenomenon where investors believe they can profit by selling an asset to a 'greater fool' who will pay an even higher price. In the context of the crypto market, this theory explains the formation of speculative bubbles. As prices rise rapidly, investors are driven by the fear of missing out (FOMO) and the belief that they can sell at a higher price to someone else. This behavior creates a bubble where the asset's value becomes detached from its fundamentals. Eventually, the bubble bursts, and those who bought at inflated prices suffer significant losses. It is important for investors to be aware of the greater fool theory and exercise caution during speculative bubble periods.
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