I just realized that many of you still don’t fully understand coin bubbles—the phenomenon that probably everyone has experienced at least once in the crypto world. It’s just like those hot water balloons: they gradually inflate, then grow bigger and bigger, until they finally burst. With coin bubbles, it’s exactly the same— the price of a certain coin or project skyrockets in a short period, and then drops sharply back down.

Actually, the root cause of coin bubbles isn’t that complicated. Today’s market demand for cryptocurrencies far exceeds their real value. When people see prices rising, they get carried away, don’t dig in carefully, and rush to buy—and that makes the bubble keep growing larger.

More specifically, there are three main factors that drive coin bubbles. First is FOMO—the fear of missing out. When you see others making profits, you get swept up too, before you’ve even taken the time to research properly. Second is blind excitement—people only see the price going up and don’t care about the technology or the project’s practical real-world use. Third is the influence of social media and influencers, who constantly urge, “This will increase in price a lot—you’ll make a profit,” leading people to be misled and pour their money into it.

Looking back at history, there have been two major coin bubble events. In 2017, when ICOs became popular, new companies issued coins to raise capital. At that time, Bitcoin also surged, people became interested in crypto, and they invested in projects with no guarantees. As a result, most of those projects disappeared, and investors suffered massive losses. Then after 2020, DeFi and NFTs became extremely trendy. NFT PFPs like Bored Ape Yacht Club and CryptoPunks reached prices in the millions of USD. People spent hundreds of millions on a small artwork, believing the future would be better—but the market eventually collapsed, and the value of most NFTs dropped sharply.

So how can you tell when a coin bubble is about to happen? If the price of a certain crypto rises sharply in a short time, you need to be careful. A project that has no real technology or practical applications and only goes up in price is a clear sign. If you hear the media or influencers encouraging people to buy, you should be on guard too.

But what’s the best way to protect yourself from coin bubbles? No matter what project you invest in, do your own thorough research. Who is involved, how does the technology work, and what problem does it solve. Don’t rush to buy when prices are climbing and then sell in a panic—this is the easiest way to fall into a bubble. Think long term and only invest in projects you truly believe in.

Another important thing is not to put all your money into a single coin. Allocate your portfolio reasonably and invest across different sectors. When prices rise, take out a portion of the profits to ensure you can preserve your original capital. That way, even if the market declines later, you won’t lose your principal. In short, be cautious about excitement in the market, make investment decisions in a systematic and wise way, and always do careful research before you jump in.