Will The Crypto Industry End Up Like The Dot Com Bubble?

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The late 1990s were a boom time for online invention and technical progress, but the tech bubble burst soon after the new millennium started. When the party dissolved in the early 2000s, speculative investments and trading encouraged significant market gains. In 2017 there was a similar bubble in the bitcoin business. Dot-com boom of 2017 and early 2018 or is it yet to come?

Paul Eisma, head of trading at XBTO Group, told Forbes in an email that the market is in a similar situation to that after the dot-com bubble, with better quality projects and corporations preparing for the long term.
 

Crypto Bubble Of 2017

The crypto markets soared in value in 2017 thanks to bitcoin's leadership. According to statistics from TradingView.com, bitcoin climbed from less than $1,000 in January to about $20,000 in December 2017. Between January 2017 and January 2018, the overall value of the cryptocurrency market rose from around $14 billion to more than $750 billion.

Initial coin offers (ICOs) have become more popular as a new technique for generating money. Due to speculation and marketing, several ICOs generated large sums of money. Crypto's bubble burst in January 2018, however, with the whole market suffering severe losses by the end of 2018.

There are those who are looking back to the South Sea Company or "Tulipmania" to find historical antecedents for the growth of bitcoin, but you don't need to go back that far.

A few years ago, the price of bitcoin surged to almost $20,000 in December of 2017, only a few years after it started the year at a meager $1,000. However, a year later, the price had dropped to around $3,000, which is roughly 75% lower than when it peaked.

The price of bitcoin has risen from roughly $7,000 a year ago to more than $61,000 in mid-March.

Because of this, the present bull market should not be viewed with such skepticism, since there are several notable differences from late 2017.

Of particular note is how many institutional investors have invested in the company. Since 2017's bull market was spearheaded by retail investors, JP Morgan data shows that institutions have surpassed retail purchases over the previous two quarters.

Bitcoin's market cap is now over $1 trillion, nearly 400 percent higher than it was in 2017, thanks in part to this support from financial institutions. Some analysts believe that institutional backing may help to avoid a repeat of the 2017-2018 bear market's sharp decline, even if ordinary investors may have put the 2017 bull market on weak ground.

Firms that accept and clear cryptocurrencies have passed the "create the beachhead" phase and are now in "virtuous network" mode, whereby "liquidity begets liquidity."
 

History Of Dot Com Bubble

Investments in Internet-based enterprises during the late 1990s bull market spurred a fast increase in U.S. technology stock equity values known as the dot-com bubble. As the technology-driven Nasdaq rose from under 1,000 to over 5,000 between 1995 and 2000, the value of equities markets surged rapidly. Between 2001 and 2002, stocks entered a bear market as a result of the bubble's implosion.

Following the crisis, the Nasdaq index fell from a high of 5,048.62 points on March 10, 2000, to 1,139.90 points on October 4, 2002, a decline of 76.81 percent. The Nasdaq took 15 years to reach its previous high, but on April 24, 2015, it finally did.

One reason for what came to be dubbed “the Internet bubble” or “dot-com bubble” was that there was an excess of venture capital financing available for companies, as well as the inability of dotcoms to make money. Internet firms received a flurry of funding in the 1990s, with investors expecting a return on their investment. As the Internet's usage increased, many investors and venture capitalists decided to forsake a conservative approach in fear of missing out on the profits.

There was a scramble among start-ups as financial markets pumped millions of dollars into the industry. Fiscal accountability was abandoned by companies with no unique technologies. Advertisement accounted for as much as 90% of the budgets of some new businesses.

Stock prices tripled and quadrupled in one day for companies that hadn't yet generated revenue or profits or had yet to produce a final product when they went public.
 

Will Cryptos End Up Like Dotcom Bubble?

After the "irrationally enthusiastic" 2017 speculative currency bubble, the ecosystem had to be "painfully and essential" cleansed in 2018, according to Eisma. "

In 2017, several firms jumped on the blockchain and cryptocurrency bandwagon, regardless of the technology's practicality.

Recalling bitcoin's initial value proposition, Eisma referred to the projected May 11, 2020 halving of bitcoin's mining payout as an example of this. The halving significantly reduced the supply of new bitcoins being mined and brought to the market.

Bitcoin's initial block, mined in 2009, and the last block before it was halved both have statements engraved on the status of the U.S. economy. By reminding us that bitcoin is an asset that is not controlled by any government and that could potentially serve as a store of value, currency, or account for a digital present as well as a digital future," Eisma said.

"Given the present global macroclimate and pandemic," he continued, "these features are relevant and timely."

Over time, we'll see that we're at the beginning of a technical, digital monetary system development where bitcoin might serve as the foundation for a worldwide digital standard akin to the Bretton Woods system.