How the Cryptocurrency boom is the same and different than the early Internet boom
In the preface to this writing, some of the FUD (Fear, Uncertainty and Doubt) out in the public against Cryptocurrencies has been with attempts to link the new blockchain economy and the early internet boom and bust days. This article is about how they are right, and very wrong at the same time.
Dot-com Bubble
I always love to go back and see how people, events, and ideas have propagated and evolved throughout history. First, let’s take a look at the dot-com bubble/crash.
The information technology boom or bubble, however it may be called, happened between the years of 1997 and 2000. And the crash came in 2000–2002. During the early period, there was a lot of speculation in tech companies and enormous growth. In the previous years from 1990–1997, in the United States, the percentage of households which own computers grew from 15%-35%[1], which understandably seems unreal to today, since everyone holds a powerful computer in their hands.
This time was filled with unprecedented personal investing. People were quitting their jobs to do day trading full time. Investors throwing money at anything Internet related. This should be starting to sound very familiar now to some as the same thing is going on right now in Crypto.
Peak of the Pop
On January 10, 2000, America Online, a favorite of dot-com investors and pioneer of dial-up Internet access, announced plans to merge with Time Warner, the world’s largest media company, in the largest merger in history at that time (The new company being worth $350 Billion). [2] This was a moment regarded as the peak. [3]
In March of 2000, the NASDAQ peaked at 5,132.52, but fell 78% in the following 30 months. All of the new Internet companies got big too fast, were over spending. Losing $10–30 million dollars every quarter was completely unsustainable.
In 2001 due to high debt, unused network equipment products and a general loss in stock market confidence, the Telecom crash happened next.
So next question we should ask is what are the the similarities we are seeing now as the new Internet of Money begins.
Bitcoin was created in 2009, for the first time something could actually be scarce and have all the characteristics of money on the Internet. In 2011 we started to see the first alt-coins being created, and now in 2017 there are thousands of coins and tokens and new ones created every day.
Many people became Bitcoin millionaires and have since created new companies in the increasingly growing space, and many others are now trying to recapture that experience with new coins or a portfolio of assets. I know of people who have left school or their job because they were early miners. There are people now doing full time mining on Ethereum or forging in the case of Lisk.
New investors are trying their hand at day trading and just like the early Internet days, losing lots of money. Due to the nature of ICOs there have been more than a few which just launched a website, collected funds in cryptocurrency and then shut down. Investing and keeping your funds safe in Crypto is very hard still and this year alone due to website hacking and email / slack chat phishing, investors have lost over $150 million [4].
Despite all this however, there is a high level of resilience in the new asset class.
This Is What The Dot-Com Crash Looked Like
Cryptocurrencies are bubbly and crashy. However, they are bubbles and crashes all the time, including consolidations and recoveries. They are beasts that refuse to die. Bitcoin alone has been declared dead over 160 times according to the Bitcoin Obituaries, a humorous site with saved mentions of Bitcoin’s death in the media.
There is the infamous Mt Gox heist and subsequent crash of the price. However the largest crash in Bitcoin history was back in 2011 when it peaked at $32 then investors taking profits in a market with low liquidity crashed it all the way down to $2, a loss of 68 percent.
Article in Fortune covering 5 major Bitcoin crashes.
Here is the Bitcoin chart with data back from 2009, displaying all it’s crashes.
And it’s not just Bitcoin booming, bursting and crashing and then recovering again to all-time highs, but all Cryptocurrencies. All these markets are still young, major early adoption hasn’t happened yet, so the volatility is driven by a relatively low number of investors as compared to the stock markets and Forex.
Here is a chart showing total market dominance among Cryptocurrencies.
Bitcoin will lose market share every year. However, the value of each individual Bitcoin seems unlikely to be challenged by any other coin thus far. The value of Bitcoin over time has double every year, which puts it on the path towards $10,000 in 2018.
ICO Insanity
Ethereum introduced smart contracts and became a platform for new projects in the blockchain sphere. This has completely disrupted traditional VC(venture capitalists) and angel investing. Now anyone can now invest in any token startup and own the core asset they are investing in.
This has led to new wealth created in the cryptocurrency space, however the success of Ethereum itself and others has spawned more frenzy. With thousands of new investors every day joining and trying to find that next Bitcoin or next Ethereum, pumping and dumping, losing cash to straight up frauds or phishing.
As mentioned above over $150 million were stolen from users and $7 million in Ethereum stolen just from the Coindash ICO when hackers took over their website servers and replaced the contribution address. Yet after all that, investing and innovation continue.
Unlike the Internet boom when sites like Pets.com failed because they were overvalued with nothing to show. These new tech companies are building the next iteration and infrastructure of the Internet, web 3.0 or The Internet of Money. All businesses dealing with finance, data recording, healthcare, voting, and more will be run on the blockchain in some shape or form in the future.
Cryptocurrencies are not a fad, and though there are bubbles, those bubbles pop all the time yet these new assets recover, because they are all in essence money and the future stores of value.
[1] https://en.wikipedia.org/wiki/Dot-com_bubble#Increases_in_computer_and_internet_usage
[2] http://money.cnn.com/2000/01/10/deals/aol_warner
[3] http://fortune.com/2016/10/24/att-time-warner-aol
[4] Ethereum: cyber criminals stole $150 million through ICOs in 2017
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