Cryptocurrency is forever getting compared, whether it be Bitcoin’s comparison to gold, Ethereum’s comparison to the internet, or even some altcoin’s comparison to actual excrement… But it’s the crypto market itself with the most interesting comparison: the resemblance to the 1990’s dotcom bubble.
So why the parallel? To understand we first need to take a dive into the events surrounding the dotcom bubble.
The bubble to end all bubbles…
It all started over a decade ago, back in the early 1990s. The internet was fast emerging as one of the single most important creations, no longer constricted to military use and thanks to Tim Burner’s Lee and his little contribution dubbed, the world wide web, now made public.
Now to put this in perspective, around 1997, the percentage of households owning a computer increased from 15% to 35% turning from a relative luxury item to an absolute necessity.
The adoption of such spurred the founding of many internet-based companies, often referred to as dot-com companies – thanks to the novelty of having a ‘.com’ address.
Speculation around these companies was rife, and economic factors such as low-interest rates (compared to that of the ’70s and ’80s) ushered in blasé attitudes towards investing.
A combination of this speculation and relative economic prosperity, fuelled fad based investing. Hoards of dotcom companies soon went public, gaining a coveted listing on the NASDAQ with ease. Venture capitals weren’t immune to the speculative riot either, offering to fund by the truckload.
Investors we’re injecting cash into companies based purely off the dotcom suffix; most of which hadn’t even turned a profit, but that didn’t matter because investors were HODLing holding for the long term. This led to many dotcom companies becoming highly overvalued based on pure speculation without any fundamental basis (sounds eerily familiar) …
As the bubble grew, Investment banks got involved, profiting greatly from initial public offerings (ICO) (IPO) and subsequently touting further investment.
As a result, between 1995 and 2000 the Nasdaq composite stock market index rose 400% to an all-time closing high of 5048 points. stores of people quitting their jobs and day trading full time were commonplace and early investors were emerging millionaires overnight.
One illustration of a typical boom within the dotcom bubble was following the IPO of theglobe.com; citing a 606% pump on the day it went public.
Now, it was called the dotcom BUBBLE for nothing. One particular trait shared by all bubbles (analogized or otherwise) is that they have a tendency to burst.
And that’s exactly what happened. The bubble burst on the 10th March 2000, shortly after the Nasdaq index posted its high of 5048 points. This was the breaking point for the large tech firms such as Intel, Dell, and Cisco who decidedly had enough of the long game, selling their stocks and causing panic selling en mass.
During the 2-year bear market which followed the crash, the Nasdaq composite dropped from its high of 5048.62 points to a low of 1114.11, representing a -77% drop and $5 trillion in investment, evaporated.
In the aftermath, hundreds of companies liquidated what little capital the had left, and went completely under by 2004 only 48% of dotcom companies were left standing, albeit on their last leg.
Those that did manage to weather the harsh winter to follow, gained prominence and eventually (far) surpassed their original market cap highs; with dotcom companies such as Amazon and Google, now dominating the market.
The Dotcom Paradigm.
You may have noticed the many parallels with the cryptocurrency within the dotcom bubble of the ’90s, a new disruptive technology, the exorbitant prices and exponential growth stemming from speculation, a general feeling of invulnerability and an eventual crash and 80% discount on former highs. It’s all there.
Its no wonder, then, that so many compare the crypto industry to the dotcom era, but this needn’t be a bad thing…
Interestingly back in February last year, blockchain analysis firm, Elementus, drew up a side by side comparison chart, overlaying both the BTC and the Nasdaq composite price history, returning an almost identical pattern.
The firm postulates that BTC was in a bubble, something which most of us can attest to now – thanks mostly to the power of hindsight.
However, hype and speculation have all but died down with the price lull, and we’re still powering through, building value (albeit incrementally) based on adoption – both retail and commercial, as well as technological developments.
The Amazon Paradigm
Let’s take the market leader, Amazon, as an example; one of the biggest losers during the crash. In December 1999 the price of a share in Amazon (AMZN) hit a peak of $107 USD, setting its all-time high for the next decade. A little over a year later, and well into the trough of a prolonged bear market the price of AMZN was just under $6, a massive loss of over -90%.
(that tiny blip in the lower left corner of the graph, is the dotcom bubble…)
Read more: Bitwise researcher: “Death” of 95% of crypto might not be a bad thing…
It took just under 10 years to reach highs it once set during the bubble, with many spectators assuming it never would. Fast forward to August 2018 and AMZN posts a record all-time high of $2012; a massive growth of over 30000% since the lows of the bear market back in 2001.
In comparison, Bitcoin (BTC), also a market leader, is currently down -80% from its all-time high of around $19,665 back in December 2017, currently sitting at a price of around $3,800.
Read more: Are we almost done with the longest-ever Bitcoin bear market?
Continuing in the vein of the dotcom bubble, and comparing the aforementioned AMZN performance potential to BTC offers some extremely bullish insights.
Firstly, let’s assume that a fair (and comparable) BTC bottom is 90% from its all-time high, just to keep nicely in line with AMZN. This would equate to approximately a $2k bottom for BTC.
Now, based Amazon’s incredible precedent of over +30000% growth in the 17 years since its all-time low, and multiplying that growth by our perceived bottom its not outside the realms of possibility to hypothesize BTC at around $600,000 within the next two decades.
Read more: 8 long-term Bitcoin price predictions by experts
Regardless of how realistic this price point is, the dotcom comparison offers much more than a simple parallel, it offers a precedent of hope. Not only did these dotcom companies change the lives of those early investors and entrepreneurs, but also entirely impacted the world built around them.
Notable venture capitalist, Fred Wilson, summed it up perfectly in a book detailing the dotcom bubble, called “Boom & Bust: A Look at Economic Bubbles”:
“A friend of mine has a great line. He says ‘Nothing important has ever been built without irrational exuberance’. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever.
And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases and server structure. All that stuff has allowed what we have today, which has changed all our lives… that’s what all this speculative mania built.”
Read more: Think crypto is a bubble? Check out some of NASDAQ’s biggest losses…; eToro CEO: “Selling crypto now is like selling apple in 2001”;
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