Speculative Bubble

Speculative Bubble

A situation in which prices for securities, especially stocks, rise far above their actual value. This trend continues until investors realize just how far prices have risen, usually, but not always, resulting in a sharp decline. Speculative bubbles usually occur when investors, for any number of reasons, believe that demand for the stocks will continue to rise or that the stocks will become profitable in a short time. Both of these scenarios result in increased prices.

A famous example of a bubble is the dot-com bubble of the 1990s. Dot-com companies were hugely popular investments at the time, with IPOs of hundreds of dollars per share, even if a company had never produced a profit and in some cases, had never earned any revenue. This came from the theory that Internet companies needed to expand their customer bases as much as possible and thus corner the largest possible market share, even if this meant massive losses. NASDAQ, on which many dot-coms traded, rose to record highs. This continued until 2000, when the bubble burst and NASDAQ quickly lost more than half of its value. Other famous examples include the tulip mania of the 1630s and the housing bubble in the early 2000s.
References in periodicals archive ?
He added the present speculative bubble doesn't mean current prices for particular cryptocurrencies couldn't rise.
Just because we are in a speculative bubble does not mean current prices can't increase for a handful of survivors," Strongin wrote.
Critics of virtual currencies have called the run-up in prices a speculative bubble, but supporters of cryptocurrencies say short-term price volatility is to be expected, and the blockchain technology underpinning these assets maintains its power and value.
Additionally, placing cryptocurrencies into the same category as traditional currencies and taxing gains may also help reduce some of the speculative bubble that is taking place.
Many financial pros believe bitcoin is in a speculative bubble that could crash any time.
Bears cast doubt on the value of the virtual assets, with UBS Group AG this week calling bitcoin the "biggest speculative bubble in history.
And Nouriel Roubini, the American economist who predicted the 2008 financial crash, cautioned: "There is a gigantic speculative bubble related to bitcoin because this is neither a serious method of payment nor a good way to store capital.
In fact, at one point, at the height of what became an incredible, speculative bubble, single tulip bulbs were reportedly exchanging hands for more than 10 times the annual income of a skilled craftsworker and one particular variety was worth upwards of five times the cost of an average Dutch house at the time.
I think the first thing to note is that the crypto currency bitcoin is in a huge speculative bubble right now, which means it is very volatile.
This is a dangerous speculative bubble by any shadow or stretch of the imagination.
So far it's following the playbook for a speculative bubble to the letter.
With no intrinsic value to bitcoin, it's hard to see this as anything other than a giant speculative bubble," Wilson added.