THE FEAR & GREED CYCLE: HOW HUMAN EMOTION DRIVES MARKET CRASHES
We all think market crashes are just natural disasters, something that happens out of our control like a sudden storm that wipes out everything in its path. But is that really true?
Are financial crises truly inevitable, or do human emotions play a bigger role than we admit?
History has shown us that market crashes don’t just happen; they are fueled by a vicious cycle of fear and greed two emotions that drive financial markets to extreme highs and devastating lows. From Tulip Mania in the 1630s to the 2008 financial crisis, the same psychological patterns have repeated themselves over and over again.
Today, we’re going to dive into how fear and greed shape markets, why people keep falling for the same traps, and how you can avoid becoming the next victim.
The First Market Bubble: Tulip Mania (1630s)
Let’s take a trip back to 17th-century Holland, where tulips were the hottest investment in town. Not stocks. Not real estate. Flowers.
At the time, tulips especially rare "broken" varieties with flame-like patterns were highly sought after. These patterns were caused by a virus, making the flowers difficult to cultivate and, therefore, insanely valuable. The Dutch elite started treating tulips as status symbols, much like designer brands today.
Soon, traders saw an opportunity. Investors (and even ordinary people) jumped in, believing tulip prices would only go higher and higher. Greed took over. People started selling their houses, lands, and life savings just to buy tulip bulbs, hoping to resell them at a higher price.
At the height of the Tulip Mania, a single Semper Augustus tulip reportedly sold for 5,500 guilders more than the cost of a luxurious house on an Amsterdam canal.
Let’s put that in modern terms:
Using gold value: In the 1600s, 1 Dutch guilder contained about 0.03 ounces of gold. At today's gold price ($2,000 per ounce), 5,500 guilders would be worth roughly $330,000.
Using wage comparisons: A skilled craftsman in the 1630s earned about 300 guilders per year. If a craftsman today earns $50,000 annually, then 5,500 guilders would be roughly $900,000 in today’s money.
That’s nearly $1 million for a single tulip bulb.
And then… reality hit.
People realized tulips were just flowers not assets. Demand plummeted, prices crashed, and countless investors lost everything. The first market bubble burst, leaving behind devastated families, bankrupt merchants, and a lesson in irrational greed.
Fast Forward: Modern Financial Bubbles
If you think Tulip Mania was just a relic of the past, think again. The Fear & Greed Cycle is alive and well, and we’ve seen it happen in different forms over the centuries.
Let’s look at some modern market bubbles that followed the exact same pattern:
1. The Dot-Com Bubble (1990s – 2000s)
The internet was booming, and tech stocks were the new “tulips.” Companies with no revenue and barely any business plans were being valued in the billions simply because they had “.com” in their name.
Investors, blinded by greed and FOMO, threw money into these companies, believing they would make millions overnight. But just like with tulips, the bubble burst, and many companies went bankrupt, wiping out trillions of dollars.
2. The 2008 Financial Crisis
This was fear and greed in its purest form. Greedy banks handed out high-risk mortgages to people who couldn’t afford them, betting that real estate prices would never fall. When the housing bubble popped, fear set in, and the entire financial system collapsed.
3. Crypto & Meme Coins (Present Day)
Ever heard of Dogecoin or Bored Ape NFTs? Just like tulips, these assets were driven by hype, speculation, and the fear of missing out (FOMO). People dumped their savings into them, expecting to become overnight millionaires. And while some early investors made huge profits, many latecomers got wiped out when the hype faded.
Why Do People Keep Falling for It?
If history has taught us anything, it’s that humans never learn. The Fear & Greed Cycle is built into our psychology:
Greed Takes Over – People see others getting rich and want a piece of the action. They ignore risks and jump in, thinking, "This time is different."
The Market Booms – Prices skyrocket as more people rush in.
Reality Hits – Eventually, investors realize they overpaid.
Fear Sets In – Panic spreads, everyone sells, and the bubble bursts.
Same cycle, different year.
How to Avoid Becoming a Victim
So, how do you protect yourself from financial disaster? Simple. Follow these golden rules:
Do Your Research – Don’t invest just because everyone else is doing it. If something sounds too good to be true, it probably is.
Watch Market Trends: Spot signs of a bubble (e.g., skyrocketing prices without real value).
Never Invest More Than You Can Afford to Lose: Greed makes people reckless. Stay disciplined.
Stay Calm During Market Hype: When everyone is excited and greedy, take a step back.
Don’t Let FOMO Drive Your Decisions: Just because something is trending doesn’t mean it’s valuable.
Lastly…
Market crashes aren’t just random events. They are human-made disasters, fuelled by greed, hype, and fear. From Tulip Mania to crypto bubbles, the same cycle repeats itself over and over again.
The question is: Will you learn from history or repeat it?
Don’t get caught in the Fear & Greed Cycle. Stay informed, stay smart, and never risk what you can’t afford to lose.
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