In the early 90s came the biggest development in the history of mankind – the internet. Most of the investors and big companies saw the potential of the digital world and jumped in. This gave a sudden surge to the dotcom bubble, with rise and fall in stock prices, accompanied by investments in Internet-savvy companies. People began buying just anything, which had the word internet in it. The dotcom bubble, boom and bust, was all a result of fad investing, abundance of venture capitalists wanting to invest in startups, and failure of dotcoms to turn a profit.
A momentum of similar kind now surrounds the cryptocurrency industry. A bubble is ideally defined as a situation in which the asset prices appear to be centered around indefinite views in the future. Bitcoin is now being compared to the dotcom bubble. According to Morgan Stanley, the past few moves of Bitcoin are tracing the Nasdaq Composite Index. It rose about 278% in about 519 days and in comparison Bitcoin, rose 248% in 35 days, reaching its $19511 high in December.
Post its surge, Bitcoin’s valuation has shown a wavy momentum. Just like Nasdaq’s price index declined about 5 times from 2000, Bitcoin has shown three waves of downfall since its peak in December.
What can cryptos learn from the crypto boom and bust
So as you have followed, there are certain similarities between cryptos and the dot-com bubble. Let’s focus on what cryptos can really learn from the dot-com bubble journey
- Disruptive technologies: What gave rise to the dotcom bubble was accessible personal computing, the boom of internet service providers, subsequently giving birth to a web-based market. Similarly, the cryptocurrencies owe their origin to the blockchain technology. No one had heard of the blockchain technology until Bitcoin gained popularity. Ever since the advent of Bitcoin thereafter, many different companies became involved in Blockchain technology giving rise to other popular assets like Ripple, Ethereum etc
- Interest shown by venture capitalists: Many companies were founded by venture capitalists wanting to capitalise on technology. At the time of crypto bubble boom, in 1999, there were about 457 Initial Public offerings.Crypto world shows similar trends. CoinSchedule registered about 210 ICOs in 2016. They have raised around $6 billion in funds. Most of these are poorly planned me-too ventures. For example, Pets.com wanted to sell per accessories through Amazon. But the company suffered due to poor lack of financial planning and failed to make the ends meet as they were facing high shipping costs. Crypto is full of such poorly planned companies trying to tokenize their assets on no sound basis
- Sudden climb in prices: Internet stock prices multiplied manifold during the dotcom bubble growth period in 1999, 117 companies almost doubled their prices. Cryptocurrency plays similar games. Most of them multiply about 100 times than their ICO prices
- Minimal and poorly managed logistics: A lot of dotcom companies were facing logistics issues. Balancing the online channel as well as physical presence was a task. As mentioned, Pets.com was one of them. Blockchain firms have to deal in two areas, tokenized assets and digital transactions
- Novel business ideas: The success of companies like Amazon and EBay proves that combining novel business ideas with technology can create wonders. The crypto bubble can learn from this and leave the generic business models behind