7 Ways the Crypto Bubble is Different From the Dot Com Bubble

Will the crypto bubble pop soon? Photo by Sebastian Pichler on Unsplash

There are so many major news outlets nowadays that are unfortunately scaring away newbie crypto investors because they are claiming that all cryptocurrencies are a bubble that will soon burst and investors will lose all of their money.

This is unfortunate because many potential investors have been scared away and are missing out on potentially huge gains! Thankfully, the increased media coverage has gotten the attention of other newcomers and institutional money so the market cap has increased exponentially. There are definitely two sides to this coin.

What Happened During the Dot Com Era?

Let’s compare and contrast the Dot Com bubble to the current crypto market to see if we can figure this out for ourselves.

During the Dot Com era, many financial experts had been shouting quite loudly about how many of the companies that “everyday Joes” were investing in were overinflated with little to no justification for the price of the stock because there were no tangible assets owned by the business or sustainable sales revenue.

This is oddly similar to these crypto businesses now that have no real assets or even a workable business model at the time of the initial coin offering (ICO).

Major Differences Between the Dot Com and Crypto Environments

Veteran investors are teaching newbies, which changes the game. Photo by Ian Schneider on Unsplash

#1: Experienced investors are tutoring newbies. One saving grace is that many investors of crypto were invested during the Dot Com times and have chosen to take lessons learned to apply them to now. This experience has proven invaluable to veteran and newbie investors alike for those that choose to listen to the more experienced investors.

#2: Founders seem more private and possibly more frugal. Many founders and owners of Dot Com businesses were using investor funds to throw lavish parties or buy private jets instead of focusing on building scalable business models. Business Insider published an article that stated that the Razorfish co-founders, Craig Kanarick and Jeff Dachis, threw a party with drag queens and White Castle burgers while Boo.com founder, Ernst Malmsten, was cited as saying that his luxury jet was “too cramped.” Malmsten’s company later went bankrupt after 18 months and $135 million of venture capital. It is unknown now who really owns some of the cryptocurrency businesses today so we don’t know what they are doing with their money. But, the crypto leaders that we do know about seem to be using a lot of their money to build other businesses or to promote the businesses that they have started successfully.

#3: Fewer college dropouts now. It seemed like many business schools were losing promising students because some were dropping out to go to work for startups during the dot com era. Right now, there is not much of a mass exodus from college campuses in order to pursue careers in cryptocurrency startups. But, its early yet in the crypto space so maybe this will change soon.

#4: Less full time traders. So, I am a full time trader and have been for quite some time, I readily admit that. But, in my own defense, I have royalties and residual income from other businesses so I don’t rely monetarily on crypto. However, during the dot com timeframe before the burst, it seemed that many people were quitting their full time jobs in order to become full time stock traders. Not too many people that I know of have quit their jobs in order to pursue crypto trading full time. There are some, but not nearly as many by comparison. Most people that I have met in crypto learned the hard way during the dot com and never plan to quit their jobs in order to pursue crypto. If they make money in crypto, its just icing on their financial cake.

#5: Not started with institutional money this time around. The dot com era started with huge money from venture capitalists and accredited investors with a lot of money in their coffers. Cryptocurrency is the exact opposite. Big institutions are just now starting to get interested in crypto and are looking to pour huge money into the market. But, the early adopters that are just regular joes have been the ones to grow crypto to what it is now, which is the exact opposite of the dot com era.

#6: Crypto is worldwide. The dot com businesses were not really worldwide. Most of them were headquartered in the United States and most of the stock was sold in the United States. Crypto is not widely adopted yet but has followers and adopters in many countries around the world.

#7: Much less money in the game right now. When the dot com bubble finally burst, there was about $3 trillion in the game. Right now, the crypto market hit $200 billion at the beginning of November. I don’t think we have seen the top yet.

There are many that are speculating now that cryptocurrency is the largest financial bubble that could decimate the financial market of our time while others are saying that cryptocurrency is the next tech revolution since the start of the Internet that will change the way the world conducts business or sends money.

Rob McEwen, CEO of McEwen Mining

I found an excerpt from an interview from four years ago that CNBC conducted with Rob McEwen where he spoke about the future of gold, silver, and Bitcoin. Check this out:

When two parties agree you find value. Photo by rawpixel.com on Unsplash
“Any currency exists only because at least two parties (a buyer and a seller) agree that it represents value. So, what constitutes money? On a South Pacific island, we might agree that chicken bones are a currency. In prison, we might agree that cigarettes are a currency. Today, while we all use fiat or paper currencies as money, a medium of exchange, there is a growing concern about the value of these pieces of paper.
I don’t see why Bitcoin can’t also grow and become another viable currency, an internet based currency. If enough people accept it, it will be used. It seems to have momentum behind it and it’s intriguing how it’s truly separate from any country or central banks’ manipulation and control.
There will be growing pains, like the guy who lost money out of his electronic wallet because he left his computer on all night. Also, Bitcoin will spawn competitors, alternative digital currencies. I think it’s a mistake to write off this currency as a bubble or fad.
Will it threaten gold? I don’t think so. I think the two will grow in tandem as alternative currencies to fiat currencies.”

What will happen if the Crypto Bubble bursts?

I feel like this is the big question on everyone’s minds lately so let’s discuss the possibilities.

It is possible (not necessarily probable) that the bubble will burst and it will burst soon. Anyone that says otherwise does not really understand financial markets. You will inevitably have bull markets and then bear markets. It may be soon or it may still be years away, no one can really predict that accurately.

If the bubble does burst, I can see one of three things happening.

1. The junk coins will fall away and likely never recover because they didn’t have business models behind them at all so there is nothing to really sustain. The larger, more established coins might lose a good portion of their value and may take months or even years to recover but will come back stronger than before with even more powerful business models. This is what I think will happen, personally.

2. This is not a bubble and the crypto coins just keep gaining in value from now until forever.

3. The crypto market crashes and burns like the dot com with hardly any (if any at all) of the coin companies surviving. I don’t really see this option happening because fiat currency is not sustainable long term, especially since there is nothing really backing it but the say so of the governments that print the paper money that we use in our everyday lives right now. We need another option going forward and I feel like cryptocurrency will provide that option. Plus, banks are large monopolies with high fees and long transfer times to move money from place to place. And who really has time for all of that?

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Disclosure: This blog post is for educational and informational purposes only and is based upon my individual experience. Please do your own research and do not invest any money that you cannot afford to lose. Consult with attorneys and tax professionals for any legal or tax related questions that you may have. This should not be considered to be investing, legal, or tax advice.