Definition ∞ Market overheating describes a condition where asset prices rise too rapidly and unsustainably, driven by excessive speculation. This situation is characterized by widespread euphoria, high trading volumes, and often irrational exuberance among market participants, pushing valuations beyond their perceived fundamental worth. Indicators of overheating include a parabolic price increase, high leverage in derivatives markets, and a significant influx of inexperienced investors. Such conditions frequently precede sharp price corrections or crashes as speculative bubbles deflate.
Context ∞ Concerns about market overheating are frequently voiced by analysts in crypto news during periods of rapid price appreciation. Regulators also monitor these conditions for potential systemic risks and consumer protection issues. Identifying signs of overheating is critical for investors seeking to manage risk and avoid significant capital losses during subsequent market adjustments.
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