An economic bubble, sometimes called a speculative bubble, forms when the value of an asset ascends to levels disconnected from

the actual underlying value of the asset as a consequence of rampant and sometimes even frenzied

levels of speculation. So a bubble in this context refers to the inflation of an asset's price

that is disconnected from its metrics-based value.

And speculation in this context refers to investing in assets you think might reap

outsized rewards if you plan your moves and purchases appropriately.

Speculative bubbles tend to follow a pattern, almost a script, moving in stages, beginning with

the emergence of a new asset, or the widespread surge in fascination with an existing one.

This creates a trend which in turn sparks the perception that this asset is currently

undervalued because so many other people want to get in on it.

Thus, the thinking goes if I can buy some of this asset now, even if the price is higher than it was

before everyone got interested in it, I can probably increase my wealth because that price will

continue to go up. I can sell it for more than I bought it for. If an asset was previously priced

at $1 by the market, and then it suddenly surges to $10 on that same market, I might look at that

surge and the popularity of this asset and think, well, it's probably going to keep going up,

so even if this is 10 times the previous

price, I might still make a profit if I buy now before the price climbs even higher.

A bunch of people thinking along these same lines can then lead to a rapid price increase,

which in turn serves as evidence for the assumptions of the people who are

flogging this asset.

Those who are saying it's going to be the next big thing.

Look, we told you so, the prices went up astronomically.

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