Definition ∞ Price expansion risk describes the potential for a digital asset’s market value to increase rapidly and unsustainably, leading to an overvalued state. This risk often precedes sharp price corrections, as market fundamentals may not support the inflated valuation. It is a concern for investors who may acquire assets at peak prices, only to experience subsequent declines. Recognizing this risk is vital for prudent investment decisions.
Context ∞ Price expansion risk is a recurring theme in the volatile digital asset markets, where speculative interest can drive valuations beyond intrinsic worth. Analysts frequently monitor metrics like market capitalization to realized value ratios and funding rates to assess whether an asset is entering an overextended phase. Educating investors on the signs of speculative bubbles is an ongoing effort to mitigate widespread losses.
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