## Bubble Burst: Repeated Threats in the Financial Markets

When it comes to the phrase "bubble burst," most investors feel tense because it is associated with losing money and economic crises. Moreover, this phenomenon is not unusual in investment history but occurs repeatedly and regularly.

### What is a bubble?

**Bubble burst** is a special economic cycle: the value of assets (real estate, stocks, crypto, or commodities) skyrockets rapidly beyond their true worth, then sharply declines in a short period.

This phenomenon results from speculation, excessive investor confidence, and the general feeling that prices will keep rising indefinitely. When this feeling becomes reality, the bubble bursts violently, causing investors to lose substantial amounts of money and markets to become chaotic.

### The five stages of a bubble formation

To understand how bubbles form, let's look at its cycle:

**1. Displacement(**
It starts with an exciting new event: advanced technology, historically low interest rates, or a new industry promising to transform the economy. For example, the Internet era during the dot-com bubble.

**2. The boom phase)**
When investors see opportunities, they rush in to avoid missing out. The influx of money creates a positive feedback loop: prices rise → more money flows in → prices rise further.

**3. Euphoria(**
Here, the market atmosphere becomes "everyone makes a profit." Investors not only believe in growth but also ignore all warning signs. Due diligence )is thrown away(. Everyone just wants to "get on board" the train.

**4. Profit-taking)**
Some investors (usually the smart ones) realize that prices are overinflated. They start selling assets. Money "changes hands" from the cautious to the trend followers.

**5. Panic(**
As the number of sellers increases, everyone understands that "the party is over." A frantic sell-off occurs. Prices fall freely, and the bubble officially bursts.

) Historical examples

**2008 US Housing Crisis**

Banks offered mortgage loans to people unable to repay. Investors borrowed not for real purposes but for speculation. As housing prices soared, financial instruments tied to these loans also increased in value.

However, when the situation changed, borrowers started defaulting. The entire system collapsed. Non-performing loans reached $15 billion, and the global economy plunged into a severe downturn.

**1997 Thai Baht Crisis**

At that time, interest rates were abnormally high. Still, the real estate market thrived. Investors saw quick profit opportunities, and foreign capital flowed in heavily. The real estate bubble expanded.

On July 2, 1997, the baht was devalued. Foreign currency debt surged dramatically. Over-leveraged real estate markets collapsed. Investors couldn’t repay their debts, and the Thai economy suffered a severe recession.

( Types of asset bubbles

**Stock Bubble**: Stock prices soar beyond the company's actual performance and intrinsic value. Not only individual stocks but entire sectors or markets.

**Real Estate Bubble**: Housing prices rise beyond reality. People borrow to speculate rather than for residence.

**Currency Bubble**: Includes Bitcoin and Ethereum, which are highly volatile. When popularity surges, prices spike; bad news causes sudden drops.

**Commodity Bubble**: Gold, oil, and industrial metals spike due to heavy speculation. Prices are unbalanced with actual demand.

**Credit Bubble**: When lending to consumers and businesses expands rapidly. This fragile situation can lead to defaults when the economy downturns.

) Factors promoting bubbles

**Economic factors**: Low interest rates, optimistic economic outlook, foreign capital inflows—all drive asset prices higher.

**New stimuli**: Launching new products or technologies (like AI or Web3) excite investors.

**Scarcity**: When assets are scarce ###such as prime real estate or Bitcoin###, prices soar.

**Herd behavior**: Investors follow the crowd, whether they understand the assets or not. They just want profits like others.

**Psychological biases**:
- **Herd mentality###**: Everyone rushes in because others do.
- **Confirmation bias(**: Only listen to good news, ignore bad news.
- **Overconfidence)**: Think "I will exit before the market crashes."

( Historical types of bubbles

Bubbles do not occur in just one place. Examples include:
- "Tulip Mania" in the Netherlands )1634-1637(
- Dot-com bubble )1995-2000(
- Subprime bubble )2007-2008(
- Cryptocurrency bubbles )repeatedly###

( How to prepare for bubbles

**1. Ask yourself questions**
Why are you investing? Because of FOMO )fear of missing out(? Or because of clear calculations? If the answer is FOMO, be more cautious.

**2. Diversify investments)**
Don’t put all your money into one asset class. 100% in Bitcoin, for example, still carries high risk.

**3. Avoid crazy speculation**
When the market starts to look "hot," reduce your position in speculative assets.

**4. Invest gradually(Dollar-Cost Averaging)**
Instead of investing all at once, invest over time. This technique helps you avoid buying at the peak.

**5. Maintain cash reserves**
Cash is power. When the bubble bursts, cash allows you to buy good assets at lower prices.

**6. Study basic fundamentals(**
Before investing, understand the asset’s origin: what does the company or project do? Who are the management? What do the financials look like?

) Summary

**Bubble burst** is not entirely avoidable, but you can **be prepared**. The problem with bubbles is that people are often triggered by emotions, not logic.

Price rises ⬆️ → Buyers seek profits → Prices rise further → Until reaching the peak → People start to panic → Prices fall ⬇️ → Rapid sell-off → Collapse occurs quickly.

The way to protect yourself is: **Stay calm, always study, diversify, and don’t believe everything you see.**

With these strategies, you may not completely avoid bubbles, but at least you can reduce risks and sustain your investment life longer.