I have been reading about the worsening housing/rental market, COL and worrying inflation figures as a whole. Seeing lots of talk about this mythical “bubble”- people saying things like “the bubble is about to pop”, and “welcome to the bubble” blahblahblah **BUBBLE**. Seems like this is a common term/knowledge in economics but I don’t fully understand… please eli5 🙂
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It’s more or less when the market is assessing a thing as a lot more expensive than it is actually worth. Being “on the bubble” is when someone invests heavily into that thing, and there’s a large gap between what the market says it’s worth, and where it’s true value actually is.
The most recent and extreme example is NFT’s. Their real-world value is practically nonexistent. They don’t have a physical form, aren’t accepted as tender, can’t be traded outside of the NFT marketplace, etc. But those marketplaces value them, and used to value them by quite a bit, with some going for many thousands of dollars worth of cryptocurrency. But the bubble is in the process of bursting. Right now, NFT’s are worth about 1/3 of what they were just three months ago. And because there isn’t a solid floor, the NFT market will continue to deflate. (Unlike say the housing market, where national or local policies can artificially inflate the value of housing well beyond what it costs to build….but housing is still is worth quite a bit without the artificially high prices.)
The inflate and deflating, as well as the gap between market value and hard/real world value gives the metaphor of having a bubble sitting on a surface.
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