Definition ∞ A tech bubble is an economic phenomenon where technology company valuations become inflated beyond their intrinsic worth. This occurs due to speculative investment, excessive optimism, and a disconnect between market prices and underlying financial performance, often seen in emerging sectors. Such periods are characterized by rapid price appreciation, significant capital inflows, and a proliferation of new ventures, many of which may lack sustainable business models. The eventual bursting of a tech bubble leads to sharp market corrections and a re-evaluation of investment fundamentals.
Context ∞ The concept of a tech bubble is frequently discussed in relation to the cryptocurrency market, particularly during periods of extreme price rallies and the emergence of numerous new tokens. Analysts debate whether digital asset valuations reflect genuine technological utility or speculative excess, drawing parallels to historical market cycles. Understanding the characteristics of a tech bubble helps investors assess risk and make informed decisions within the volatile digital asset landscape.
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