What do you think of when you see the phrase "bursting bubble"? Most people probably think of financial crises, massive losses of money, and markets collapsing. This understanding is not wrong because the phenomenon of a bursting bubble is one of the recurring cycles in the economy.

In fact, bubbles burst when asset prices—whether stocks, real estate, or even digital currencies—rise to unrealistic levels, exceeding their true value. Mostly, this happens because investors rush in out of fear of missing out or speculative gains for quick returns, until the market can no longer support those high prices.

What’s interesting is that bubbles bursting is not a new phenomenon. Looking back at history, we see clear examples, such as the U.S. real estate crisis in 2008 that led to the subprime mortgage crisis. During that time, financial institutions approved loans to borrowers who couldn’t repay, turning homes into speculative assets with unreasonable price surges. Eventually, borrowers defaulted, the entire system collapsed, and global bad debt soared to $1.5 trillion.

Or consider the Asian financial crisis in Thailand in 1997. High interest rates persisted, yet real estate still thrived. Foreign capital flowed in, investors saw profit opportunities, and prices soared. But when the baht was devalued, foreign-denominated debt skyrocketed, the bubble burst, real estate values plummeted, and many borrowers couldn’t repay their loans, leading to a severe economic downturn.

There are many types of bubbles to be aware of, such as stock market bubbles when stock prices exceed their intrinsic value, asset bubbles expanding into real estate, currencies, and even commodities like gold, oil, and industrial metals. Credit bubbles occur when lending expands uncontrollably, making the system fragile.

Several factors cause bubbles to burst, including low interest rates that stimulate borrowing, a booming economy attracting investments, new technologies exciting investors, but most importantly, human psychology. When prices rise sharply, everyone rushes in, creating a positive feedback loop. Herd mentality causes people to ignore warning signs, believing they can exit the market before it crashes.

Bubbles typically go through five stages: first is the displacement, where something new excites the market, like a new technology or industry. Second is the uptrend, with capital flowing in and prices rising. Third is euphoria, where investors are optimistic and believe prices will keep climbing. Fourth is profit-taking, as some realize prices are too high and start selling. Fifth is panic, where everyone tries to sell, prices fall, and the bubble finally bursts.

So, what should investors do to protect themselves from a bursting bubble? First, review your investment objectives—are you investing based on understanding or just fear of missing out? Second, diversify your investments—don’t concentrate in a single asset class. Third, limit speculative investments, as these are usually the first to fall when a bubble bursts. Fourth, invest gradually using dollar-cost averaging to avoid buying at the peak. Fifth, keep cash reserves to take advantage of opportunities after the bubble bursts. Most importantly, understand the market, stay informed, and analyze before making decisions.

In summary, bubbles burst more due to human behavior than economic factors. When prices diverge from true value, and investors rush in with hope, the bubble inflates. But it cannot last forever. Eventually, reality catches up, prices fall, and the bubble bursts. Those unprepared lose money, while well-prepared investors may see new opportunities. What we should do is stay alert, learn, diversify risk, and never stop analyzing the market.