Tulip Mania, Dot-com Bubble All at Once... Bitcoin (BTC), Bubble Collapse Warning

▲ Bitcoin (BTC)/AI generated image

A warning has emerged that signs of past financial bubble collapses are appearing simultaneously in the cryptocurrency and AI markets.

Crypto-focused YouTube channel Coin Bureau explained in a video uploaded on July 28 (local time) that market bubbles begin with real opportunities. Innovation attracts capital and pushes up prices. Price increases lead to speculation and expanded leverage. The moment investors are convinced of the upward trend, the market rapidly becomes vulnerable.

The video cited the 17th-century Tulip Mania, the South Sea Company, and the Mississippi Company bubbles as prime examples. All three cases featured scarcity and grand promises. Authoritative patrons, including politicians and royalty, also boosted investor confidence. When price increases, rather than actual profits, became the basis for investment, the market collapsed after buying interest ceased.

The 19th-century British railway investment craze left a lesson that technological success does not guarantee investment success. Railway networks transformed transportation and trade. However, numerous companies failed amidst redundant routes and immense construction costs. Even during the dot-com bubble, the internet survived, but most companies with weak revenue models disappeared after funding dried up.

Leverage amplified bubble collapses into crises for the entire financial market. In the US in 1929, margin trading led to repeated forced selling and further declines. In Japan in the 1980s, rising asset prices encouraged expanded collateral and additional loans. In 2008, subprime mortgages were packaged into complex products, but the risk spread throughout the financial system.

Coin Bureau likened memecoins and NFTs to Tulip Mania, explaining that their structure, which anticipates the arrival of the next buyer rather than focusing on performance, is similar. They evaluated cryptocurrency perpetual futures and margin trading as having automated the forced selling of 1929 on a 24-hour basis. They pointed out that DeFi's multi-layered collateral products could obscure underlying risks, similar to financial products in 2008. AI was also assessed as a technology that could change industries like the internet. However, they emphasized that the high valuations of all AI companies are not necessarily justified.

[Article Key Summary]

-Coin Bureau analyzed that financial bubbles form as innovation attracts capital and speculation, and leverage increases.

-Memecoins, automatic liquidation, and DeFi products were assessed as resembling the structures of past Tulip Mania, the Great Depression, and financial crises.

-It was pointed out that AI can grow like the internet, but it does not guarantee the investment value of all related companies.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*