Two points, first the covering of the psuedobulb does die off leaving the papery brown material that covers old psuedobulbs. That's completely normal growth. Second, That same covering can create an ideal environment for fungus or insects. Occasionally fungus will get in there and spread to the rest of the psuedobulb. I have lots of catts and this only happens once in a while. I remove that material over the psuedobulb as soon as it's weak enough to peel off without harming the orchid. The most vulnerable area is right at the top so even just peeling back the top, once it turns brown, will keep water from collecting in there and causing problems.
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