Definition
An asset bubble is a sustained, rapid run-up in the price of an asset — housing, stocks, tulips, cryptocurrency — that detaches that price from the income or utility the asset can realistically generate. Buyers purchase not because the asset is worth the price but because they expect to resell it to someone else for more.
Bubbles are visible most clearly after they burst. While inflating, they are difficult to distinguish from a genuine repricing justified by new fundamentals, which is one reason they recur throughout financial history.
Why it matters
How it works
A bubble typically begins with a real catalyst — a new technology, low interest rates, or financial innovation. Early gains attract attention, optimism spreads, and credit flows in. Prices rise because prices are rising, a self-fulfilling loop in which fundamentals stop disciplining valuations.
The cycle ends when buyers run out or doubt sets in. Selling triggers more selling, leverage forces liquidations, and prices fall faster than they rose. The 2008 housing bubble showed how interconnected finance can turn one asset's collapse into a systemic crisis.