Bubble Lifecycle Analysis
Bubble Lifecycle Analysis is the systematic study of the distinct phases that asset markets undergo during periods of rapid, unsustainable price appreciation followed by a crash. It typically begins with a displacement phase, where a new paradigm or innovation triggers interest.
This transitions into a boom phase, characterized by increased participation, speculative fervor, and the influx of cheap credit or leverage. Euphoria marks the peak, where asset prices detach completely from fundamental value due to widespread belief in permanent growth.
Profit-taking by early investors leads to the distress phase, where momentum shifts and fear replaces greed. Finally, the capitulation phase results in a sharp price collapse, often causing systemic distress across financial networks.
Understanding this cycle helps participants identify behavioral shifts and risk accumulation before the inevitable correction.