I’ve been reading a lot about how bubbles work in crypto, and it’s fascinating to see the same pattern repeat over and over again. It’s not just that prices skyrocket wildly—there’s a whole psychological dynamic behind it that makes people lose their minds.

Economists Minsky and Kindleberger described a five-phase cycle years ago that explains well how crypto bubbles burst: displacement, boom, euphoria, profit-taking, and panic. It’s almost like a script that plays out in every cycle. The BIS documented perfectly how, in 2021-2022, we saw exactly this, followed by the brutal correction that came after. What’s interesting is that the IMF has been warning about structural risks, especially in DeFi, where many projects are “decentralized only in name.”

Looking at historical cases, the 2017-2018 ICO boom was a classic. Projects raised millions without even having a real product. Then came the NFT madness in 2021, where OpenSea exploded in volume and then crashed when people realized they were paying absurd prices for images. That’s the dynamic of a bubble at its peak.

Now, how do you identify a crypto bubble before it falls apart? I’ve seen several clear patterns. First, prices surge in a completely parabolic way, disconnected from any real utility metric. It’s accompanied by a lot of FOMO and the narrative of “this time is different,” which is what everyone says at the peak.

Second, leverage inflates like a balloon. People start using margin trading, promising high returns with no clear risks. Third, liquidity in smaller coins becomes a disaster while prices fly purely on speculation. Fourth, you see influencers and celebrities promoting everything nonstop, and Google Trends explodes. Fifth, there’s a total lack of transparency and audits in new projects.

What the BIS and the IMF have documented is that these symptoms show up again and again. The question is: how do you protect yourself? This is where discipline comes in.

First, the size of your position should be proportional to the asset’s volatility. The more volatile it is, the smaller percentage of your capital you should risk. It’s basic, but many people forget it when there’s euphoria. Second, avoid excessive leverage. I’ve seen massive liquidations when the market reverses quickly; it’s devastating.

Third, diversify your sources of risk. Don’t put everything into a single narrative. If you want exposure to BTC or ETH, ETF spot products are simpler for some. Altcoins should be treated as pure speculative risk. Fourth, really verify what’s behind the project: audits, the economic model, the team, regulatory compliance. A stablecoin with a clear regulatory framework is different from an opaque scheme.

And most importantly: have an exit plan. Set profit targets in phases and stop-losses. Discipline in executing that is more important than trying to predict the peak.

In summary, a crypto bubble isn’t just prices that explode. It’s a combination of narratives, cheap credit, and mass behavior that reinforce each other. If you understand the Minsky-Kindleberger framework, read the risk signals that the BIS and the IMF put out, and apply serious risk management, you have a much better chance of keeping your head cool when the euphoria returns.