The Stages of a Market Mania

What is mania? It is defined as a mental illness characterized by excessive enthusiasm, excitement, delusions, and hyperactivity. In investing, this translates into investment decisions that are made out of fear and greed, without any analysis, reason or balance of risk and reward consequences. The frenzy is usually running parallel with the business development of the product, but timing can occasionally run parallel.

The boom of the late 90s and the cryptocurrency boom of today are two examples of how frenzy works in real time. Both of these events will be highlighted in this article along with each step.

Idea stage

The first stage of insanity begins with a great idea. This idea is not known to many people yet, but the profit potential is huge. This is usually translated as unlimited profits, because “nothing like this has ever happened before”. Internet was one such case. People who used the paper system of the time were skeptical about how “the Internet could change such a system…

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