A crypto bubble is when investors push crypto prices to exorbitant highs that are not tethered to technological innovation, practical use cases or other market fundamentals. The crypto market has gone through several of these boom-and-bust cycles where investors’ excitement, greed and fear of missing out whips the market to frothy new heights only for it all to unravel in bankruptcies, scams and lawsuits.
What Is a Crypto Bubble?
A crypto bubble is a phenomenon in which the market value of crypto assets rapidly rises to unsustainable heights due to speculation that is not grounded in market fundamentals. When the bubble bursts, it can leave investors with large losses they may never recover.
The resurgence of Bitcoin and other cryptocurrencies in 2025 has caused investors to wonder if we are in the middle of a crypto bubble or the start of a more sustainable growth of an up-and-coming asset class. In the article below, we’ll go over a history of crypto bubbles, how they are formed and what to watch out for.
What Is a Crypto Bubble?
A crypto bubble is when the market price of cryptocurrency has inflated beyond its theoretical value. Bubbles are driven by speculation that is based in emotions, like excitement or the fear of missing out, rather than specific details about the product and its use cases.
Bubbles are an economic phenomenon that can be traced back to the 1600s, when Dutch traders paid increasingly outlandish prices for newly introduced tulip bulbs. This bubble, now known as “tulip mania,” is one of the earliest examples of futures trading, as investors took to buying and selling sales contracts in addition to the flowers themselves. Tulip mania is a cautionary tale about crowd psychology and overinflated markets, but bubbles have continued to pop up throughout history, like the U.S. housing market bubble in the early 2000s or the dot-com bubble in the 1990s.
Each bubble has its own unique characteristics. While crypto bubbles and the dot-com bust are both rooted in an enthusiasm for new technology, Bitcoin and other cryptocurrencies do not promise shareholder value in the form of dividends. And because cryptocurrencies don’t generate revenue, investors cannot calculate a price-to-earnings ratio to determine an appropriate asset value.
“In traditional markets, you can look at the assets of the company, and when they are way below the market value of the company, it’s a bubble,” Tal Elyashiv, cofounder of crypto venture capital firm SPiCE VC and author of Investing in Revolutions, told Built In. “With crypto, it’s a little different because there’s no intrinsic value you can compare against market value. So you’re really looking at history and trends, and the history is very short.”
Several prominent investors and economists believe that Bitcoin and other cryptocurrencies are inherently a bubble. Nobel Prize-winning economist Robert Shiller, an expert in bubbles, said in 2017 that Bitcoin is the “best example today of a speculative bubble.” JPMorgan CEO Jamie Dimon has said Bitcoin is a “decentralized ponzi scheme” mainly used for fraud and other illegal activities.
While Bitcoin and other cryptocurrencies can be used as payment at a select few retailers and within blockchain networks, most people buy cryptocurrency as a speculative asset. They may believe crypto is the future of currency, or they may simply believe they can sell it for a higher price in the future. In either case, they are buying it to profit off its future value.
“Because there is no fundamental thing to tie Bitcoin to, it is inherently a more emotionally driven asset.”
- Cosmo Jiang, general partner at blockchain investment firm Pantera Capital
Some crypto advocates argue that crypto (particularly Bitcoin) isn’t a bubble because it never reaches zero and often bounces back. For his part, Shiller has argued that bubbles routinely “mutate” and reappear. Crypto investors prefer to call these bubble periods a “cycle.” Bitcoin and the broader crypto industry have gone through several boom-and-bust cycles — most notably in 2013, 2017 and 2021. These cycles are much more volatile than stock market cycles, often going through years-long drawdowns.
“Because there is no fundamental thing to tie Bitcoin to, it is inherently a more emotionally driven asset,” Cosmo Jiang, general partner at blockchain investment firm Pantera Capital, told Built In. “So it will have higher and lower extremes because it’s unbounded by evaluation metrics that tether it to a certain thing.”
Timeline of Crypto Bubbles
2013: The 2013 Bitcoin bubble was small in today’s terms, but it was among the first. The coin surged from about $100 in October 2013 to more than $1,100 two months later. The coin enjoyed newfound popularity in China, but lost half its value when China’s central bank warned banks not to trade in Bitcoin. The remainder of the bubble popped in February 2014, when crypto exchange Mt. Gox declared bankruptcy after losing 850,000 bitcoin. Researchers later found that Bitcoin’s price may have been artificially inflated by bots on Mt. Gox that created fake trades using bitcoin they didn’t own.
2017: After trading for less than $3,000 in August 2017, Bitcoin grew to nearly $20,000 in December 2017 before its bubble burst, dropping below $7,000 by February 2018. Ethereum had a similar spike in popularity. This bubble was partially fueled by initial coin offerings, or ICOs, which are crowdfunding campaigns in which upstart blockchain projects sell their new tokens for more established cryptocurrencies like Bitcoin or Ether. More than 800 ICOs raised roughly $20 billion during this period, some of which raised tens of millions of dollars without ever launching a project.
2020-2022: Crypto took off like never before in late 2020. Lasting nearly two years, this bubble period saw the rise of decentralized finance applications, non-fungible tokens (NFTs) and memecoins. Institutional investors got in the game, NFTs sold for millions of dollars and memecoins skyrocketed in value. In May 2022, the bubble started to burst when stablecoins TerraUSD and LUNA lost their peg to the U.S. dollar. Crypto lender Celsius halted withdrawals the following month. The NFT bubble, worth more than $6 billion in January 2022, had dropped below $1 billion in July. The collapse of FTX brought this market cycle to a close in November 2022. When all was said and done, Bitcoin had dropped more than 70 percent from its peak of nearly $69,000, and the crypto market lost more than $2 trillion in value.
2024-2025: Crypto assets reached all-time highs following the election of President Donald Trump, who promised to make the U.S. the “crypto capital of the planet.” After launching his own memecoin, he convened a committee to craft crypto-friendly regulations and created a Bitcoin reserve using confiscated bitcoin. Bitcoin, which was trading around $60,000 before the election, crested $100,000 after Trump was inaugurated. Shortly after Trump took office, hedge fund Elliott Management told investors the “inevitable collapse” of crypto “could wreak havoc in ways we cannot yet anticipate.” Greenlight Capital President David Einhorn told investors that crypto has “reached the Fartcoin stage of the market cycle,” implying that a baseless memecoin’s $2 billion valuation could signal irrational exuberance. Bitcoin and Ethereum have both lost momentum as of April 2025, but it’s too soon to say whether this period is a bubble or the beginning of a new chapter for crypto.
Causes of Crypto Bubbles
Emotional Decision-Making
Investor psychology plays a major role in the formation of bubbles. When people hear about others’ investment success, they develop a fear of missing out, which can cause them to make irrational investment decisions. These emotions, which economist John Maynard Keynes dubbed “animal spirits,” can be heightened in the crypto market due to its volatility. Also, because the market’s decentralized, a government would not step in to bail out the industry, as was seen in the 2008 housing bubble.
“When prices go up, you think they’re going to go up forever, and when prices go down, you think it’s going to go to zero,”Andrew Lunardi, author of Magic Money: The Rise of Crypto Degens, Rug Pulls, and a Digital Revolution, told Built In. “That’s the most difficult thing about crypto. You're much more likely to buy on green days and sell on red days — and it should be the exact opposite.”
Macroeconomic Conditions
Easy access to capital and low interest rates can flood the crypto market with excess liquidity, creating a bubble. But that market optimism can dry up if the economic winds change direction. That’s why the movement of the crypto market — particularly Bitcoin — is closely tied to the stock market, interest rate decisions and other events, like the Covid-19 pandemic, that influence macroeconomic conditions.
“Originally we thought [crypto] was a very different, disassociated asset from the market, but we’ve seen — definitely with Bitcoin — that there is a decent correlation,” Elyashiv said. “It’s not one-to-one, but there is a decent correlation with market conditions.”
New Technology
When bubbles form, there’s typically an underlying thesis behind a new technology that gets blown out of proportion, Lunardi said. The Dutch, for example, were excited by the introduction of a new type of flower, and they were particularly drawn to a variation with multicolored bulbs. Crypto investors, meanwhile, are drawn to the promises of blockchain technology and a decentralized currency system. And new technological possibilities are introduced with each new crypto cycle. The altcoins introduced in 2017 inspired investors to discover the next Bitcoin, for example, and the introduction of DeFi protocols and NFTs in 2021 demonstrated the potential of the Web3 ecosystem.
Media Hype
Mainstream media coverage, social media groups and celebrity endorsements brings in newcomers chasing quick gains without a knowledge of the crypto space. When Elon Musk tweeted about Dogecoin, for example, the price skyrocketed from a fraction of a penny to 74 cents. Many of these celebrity-backed coins, like Ethereum Max, used celebrities to bring in inexperienced investors so they could defraud them with pump-and-dump schemes. Whether it’s through a scam or from being late to the party, these new investors provide exit liquidity for more-experienced investors to sell their shares and pop the bubble.
Increased Margin Trading
Overconfident investors may trade with leverage or margin to magnify their returns without thinking of the possible downsides. Leverage trading allows investors to amplify a $10,000 investment into as much as a $1 million investment. This is risky for investors, as even a 1 percent dip in the market could wipe out their original investment. Much like the 2008 housing crisis, overleveraged investors can send crypto prices soaring in boom times and crashing during downturns.
“Leverage trading is by far the biggest driver of pricing,” Lunardi said. “What you consistently see is retail holders leveraging up excessively, and then they get liquidated at mass as well.”
Bitcoin’s Halving Cycle
Cryptocurrency is a broad category, but Bitcoin is the dominant force in the sector. In Bitcoin circles, there is a theory that its boom-and-bust periods are driven by a four-year market cycle. The start of the four-year cycle is initiated by a halving event, which halves the amount of bitcoin minted with each newly created block. Because less coins are put into circulation, the value of existing assets theoretically increases. This triggers a bull run that eventually crashes, leading to a prolonged downturn known as crypto winter. The cycle theoretically repeats itself every four years, when Bitcoin undergoes another scheduled halving event. The four-year cycle is by no means a hard-and-fast rule, however.
“I think people are very wrongly attributing the four-year crypto cycle to crypto,” Jiang said, citing the 2013 Euro debt crisis, the Federal Reserve's "quantitative tightening” in 2017 and the Covid-19 pandemic in 2020. “To call the crypto cycle independent or separate is completely wrong, because it actually just follows the equity market and risk assets.”
What Happens When a Crypto Bubble Bursts?
When a crypto bubble starts to burst, it may start with one event, like a crypto exchange going bankrupt, and it may trigger a chain reaction of bankruptcies and panic-selling throughout the crypto industry. Whales and institutional investors typically sell their shares first, and smaller investors will follow suit. Once the liquidity dries up, investors flock to Bitcoin and other top-tier crypto assets, and projects with weak fundamentals, insufficient funding or excessive leverage are “cleansed” from the ecosystem, Jupiter Zheng, a partner at crypto investment firm HashKey Capital, told Built In.
When the bubble pops, those who bought at the peak are left with significant losses that they may never recover. There may be lawsuits, calls for regulatory reform and a long period of distrust and stagnation. If the crypto bubble is big enough, its burst could have ripple effects on the economy at-large. Lee Reiners, a former Federal Reserve economist who teaches at Duke University, told the New York Times that “when this crypto bubble bursts — and it will burst — it will end up impacting people across the economy even if they don’t have direct investment in crypto.”
These down periods are not all negative, though, as the reduced speculative noise allows the crypto industry to focus on technological advancement.
“While bubble bursts cause significant short-term pain, they’ve historically set the stage for more sustainable growth in subsequent cycles by eliminating weaker projects and refocusing the industry on fundamental value creation,” Zheng said.
Signs of a Crypto Bubble
Inflated NVT Ratio
Crypto investors try to identify bubbles by analyzing historical trends, usage and transaction volumes. While crypto assets do not have price-to-earnings ratios, investors can spot inflated values by looking at network value-to-transactions (NVT), which is the ratio of market capitalization compared to the volume of transactions happening on the network.
Elevated Fear and Greed Index
The Fear and Greed Index is a tool developed by CoinMarketCap to gauge investor sentiment in the crypto market. Based on price momentum, volatility and other market data, the index shows when investors are feeling overconfident or scared. When there’s a bubble, the index typically hovers in the “greed” or “extreme greed” territory.
High Relative Strength Index
Sudden price surges can indicate a bubble is forming. The relative strength index tracks the pace and direction of trading activity for an asset. Assets are generally considered “overbought” if their RSI is above 70. If an RSI hovers in “overbought” territory for too long, investors should consider whether the upward momentum is unsustainable.
Waning Bitcoin Dominance
Bitcoin dominance is another metric that can provide a clue as to the future trajectory of the market cycle, Zheng said. In the past three crypto cycles, Bitcoin commanded more market share early on, but capital shifted to altcoins in the later stage of the cycle.
Increased Public Interest
When people reflect on past bubbles, they sometimes talk about receiving stock tips from cab drivers, hair stylists and other laypeople. So if it seems like everyone is chasing the next big crypto asset, that could be a sign the market is overinflated. If terms like “Bitcoin” and “cryptocurrency” are among the top keywords on Google Trends, that may be a sign that too many people are rushing into the market due to greed, excitement and the fear of missing out.
Unrealistic Price Targets
If you follow crypto publications and crypto influencers, you will see a barrage of posts speculating that certain coins could exponentially increase in value. While there is nothing wrong with having a bullish outlook based on market conditions, many of these posts are rooted in hype and emotion. When the speculative noise reaches a fever pitch, that’s a decent sign of a bubble.
Low-Quality Projects
When people see there is money to be made, they try to get in on the action. The 2017 crypto cycle saw crypto companies with no viable projects raising millions of dollars through ICOs, and the 2021 cycle was defined by cheap imitations of popular NFTs and memecoins.
“A few of the most apparent signs are a lack of real growth, lack of product market fit and too many projects for use cases where demand has to be generated,” Bitget CEO Gracy Chen told Built In. “These products may solve a part of a problem, but do not guarantee utility in the long run. In crypto, these bubbles have had some short-term value, but they lack true scale to match their hype.”
Alongside low-quality projects you might also find outright scams. Toward the end of the 2021 crypto bubble, the memecoin market was flooded with crypto developers trying to make a quick buck through pump-and-dump schemes and rug pulls. When evaluating altcoins, investors should analyze its tokenomics to see how many coins exist, how they are distributed and whether its supply is limited through burning.
“When you start seeing there’s quick money to be made, I think that’s a hallmark of a bubble,” Lunardi said.
Frequently Asked Questions
What is a crypto bubble?
A crypto bubble is when crypto prices rise to unsustainable levels and crash. Bubbles form when people base their investment decisions on speculation about future price targets instead of the value of the underlying technology and its use cases.
Are we in a crypto bubble?
Bitcoin and other cryptocurrencies surged to all-time highs after the election of President Donald Trump, who promised regulatory reforms that would help the crypto industry. Those regulations are still being developed, so it’s too early to say if they will pave the way for wider crypto adoption that could bolster these high crypto prices. That said, crypto prices have dropped in the months since Trump’s inauguration, and some analysts have warned of a bubble.
Can crypto bubbles be prevented?
Cryptocurrency is a decentralized currency, so there is no regulatory agency that could take action to prevent a bubble. Individual investors can take steps to avoid a crypto bubble by watching out for bubble indicators, like sudden price surges, excessive hype and the prevalence of low-quality crypto projects and scams.
