What is a positive feedback loop?
A positive feedback loop in investing occurs when one event reinforces the other. Contrary to what the name implies, the loop can either be good or bad for investors.
An example of a positive feedback loop gone bad is a tweet by an influencer on social media that sparks a selloff of a cryptocurrency that snowballs and causes others to follow suit. The sentiment fuels the sell-off which fuels the bad sentiment.
The opposite also holds true. When the price of Bitcoin is booming investors tend to pile into the cryptocurrency, further elevating the price.