Definition ∞ A speculative froth purge describes a market event where excessively high valuations and irrational exuberance, often fueled by speculative trading, are eliminated through a sharp price correction. This process involves the rapid decline of asset prices as unsustainable speculation unwinds and market participants exit positions. It typically leads to a healthier market structure by removing overleveraged or weak positions. Such a purge often precedes more sustainable growth.
Context ∞ In cryptocurrency markets, a speculative froth purge is frequently observed after periods of rapid price increases, where assets become significantly overvalued. News reports often document these corrections, attributing them to factors like profit-taking, macroeconomic shifts, or regulatory concerns. This event is generally considered a necessary recalibration, clearing the way for more fundamentally driven market movements.
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