The stages of a bubble

in #bitcoin7 years ago

The stages of a bubble
Stages_of_a_bubble.jpg

Stealth Phase: A period of quiet, slow rises - after the invention, but before wider awareness. It ends as the price starts to take off

Awareness phase: More people get involved - often from banks and investment companies - as they see the potential and the price rises faster. At the end of this phase there's a sell off, that catches out pessimists. The price soon recovers

Mania phase: This is the point the media get involved and the public start buying it up. Enthusiasm for the product is followed by greed, which is followed by delusion and culminates in the proud proclamation of a "new model" that allegedly explains the growth

Blow off phase: The price drops. Not a lot, but a bit. Then recovers - although not to its previous level. The true believers say it's nothing to worry about and buy more after the drop. Then prices drop again and reality sets in. People get scared and start selling, then desperate, then they just give up as the price ends up back where it was in the "stealth" phase and fortunes are lost.

Eventually there's a recovery to around the level seen in the "awareness" phase followed by normal growth - because most of the time at the start of every bubble is a good idea

Based on Dr Jean-Paul Rodrigue of Hofstra University's anatomy of a bubble chart

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