There are several ways to determine if the cryptocurrency market is overheating. However, these are not absolute indicators and need to be judged comprehensively.
- Price volatility: Check the price volatility over a short period. If prices have more than doubled in a few days or weeks, it may be a sign of overheating.
- Increase in trading volume: If trading volume surges along with rising prices, it suggests speculative overheating.
- Media reaction: If news and discussions about cryptocurrencies are rapidly increasing and only optimistic outlooks are being emphasized, the market may be overheating.
- Interest from the general public: If the general public, who lack knowledge about cryptocurrencies, begin to show interest in investing, it indicates market overheating.
- Investor psychology: Be cautious if a psychology of “buy now or miss out” is spreading among investors.
- Divergence from fundamentals: If cryptocurrency prices greatly deviate from the practicality and adoption of the underlying technology, there may be a bubble.
- Increased volatility: If price volatility becomes larger than usual, the market may be in an unstable state.
If multiple of these signs apply, it can be judged that there is a high possibility that the market is overheating. However, the cryptocurrency market is very unstable and difficult to predict, so it is important to respond carefully.Taking a long-term perspective, conducting careful research, and diversifying risks is the attitude of a wise investor. Maintaining a calm and prudent approach, rather than getting caught up in short-term hype, is key to navigating the often turbulent waters of the crypto market.