Investors have grown increasingly alarmed in recent months about an impending stock market crash — with aggressive US tariff policies and soaring valuations in sectors like artificial intelligence sparking concerns about a significant downturn. Zerodha co-founder Nithin Kamath however pointed out on Tuesday that most ‘crashes’ followed a similar pattern.
In a recent social media post, Kamath broke down the cycle of these market crashes using a book entitled “1929: Inside the Greatest Crash in Wall Street History — and How It Shattered a Nation” by financial journalist Andrew Ross Sorkin which he later recommended as an essential read for anyone involved in the stock, commodities, or crypto markets.
What causes a crash?
Kamath recommends the book to people working in the markets as he believes the book reacquaints with the time-trusted lesson about the driver of markets, bubbles and financial failures.
Later in his post, the co-founder of Zerodha used the book to illustrate how every speculative frenzy, from the roaring twenties to the global financial crisis of 2008, follows a familiar script. In his post, Kamath broke down the anatomy of every bubble. He explained that each speculative boom begins with rising asset prices fuelled by increasing greed, creating bubbles that entice even those with little understanding of the risks.
As enthusiasm mounts, leverage—whether through loans, margin trading, or complex derivatives—silently accumulates in the background. “It always finds a home, Then, inevitably, comes the reckoning. One day, the bubble pops,” he said. “The leverage unwinds with unstoppable force, amplifying losses as cascading sell-offs feed on themselves. Markets crash, fortunes evaporate, and the cycle reaches its end,” he added.
By referencing historic collapses like the 1929 Wall Street crash and the 2008 meltdown, Kamath drew attention to the unchanging behavioural patterns that fuel financial excess.
Kamnath on the aftermath of financial disasters
“In the aftermath, lessons are learned,” Kamath wrote, suggesting that regulatory authorities typically respond to crises by targeting the specific mechanisms of leverage that led to the latest crash. As he added, “Regulations target the specific form of leverage that caused the crisis. The mechanism gets fixed, reformed, and contained. But greed never disappears.”
That recurring greed, he added, “simply waits, then returns in a new form, finding fresh channels for leverage that no one is watching. And the cycle begins again. Different stories. Same ending.”
The post comes at a time when multiple speculations about an AI bubble amongst others have arisen in both domestic and global markets. Kamath’s cautionary note aligns with these warnings, serving as a timely reminder that even in technologically advanced markets, psychology still governs cycles.