Exploring Cryptocurrency: How do individual behaviors in the financial world affect the potential of economic bubbles?

Abstract

Cryptocurrency has made waves recently with its absurd increase in prices and volume. In this paper, I sought to understand, fundamentally, what factors could have helped its rise to the top. On the other hand, large ascents like this in the past have shown to be fatal, such as the housing market bubble of 2008. It struck me that cryptocurrency seemed to be heading down a similar path, especially with its unpredictable volatility and lack of practical usage in daily life. I explored some of the behavioral trends that are prevalent in finance, and used them to understand the 2008 bubble. I then further explored cryptocurrency behavior to draw comparisons, which were not lacking. By understanding what was behind cryptocurrency’s incredible rise and what behaviors and trends may factor into its volume, I was able to come to the conclusion that cryptocurrency is an asset class that treads dangerously along the lines of forming bubbles.