Crypto Industry Now In Post-Dotcom Bubble Territory, Trading Expert Says
Hosting a booming period of online creation and technological advancement, the late 90s saw the tech bubble expand to staggering heights, only to pop shortly after the new millennium began. Speculative investments and trading facilitated rapid market gains, for a time, until the party ended in the early 2000s. The cryptocurrency industry saw a similar bubble in 2017. Was 2017 and early 2018 crypto’s dotcom boom, or is it still coming?
“We are in a market state similar to the post-dotcom boom where there are higher quality projects and companies building for the long term,” Paul Eisma, head of trading at XBTO Group, told me in an email on May 20, 2020.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The Crypto Bubble Of 2017
With bitcoin leading the charge, 2017 yielded incredible price gains for the crypto markets. Between January and December 2017, bitcoin rose from less than $1,000, all the way up to almost $20,000, based on TradingView.com data. Crypto’s total market cap also saw dramatic rise between January 2017 and January 2018, spiking from approximately $14 billion, to above $750 billion.
Bolstering the hype, initial coin offerings (ICOs) gained popularity as a new method of fundraising. Many ICOs raised millions of dollars on speculation and marketing. Crypto’s major bubble began to burst in January 2018, however, with the entire market suffering significant losses by the end of that year.
The Dotcom Bubble Of The Late-90s
Similarly, the latter half of the 90s also saw rising stock prices as speculative investors piled into the latest early-stage website businesses offering online solutions, such as shopping. With the expansion of the internet came increased potential for entrepreneurs, visionaries and profit-seekers.
People with new business ideas whipped up websites and companies, often with business development and profitability taking a back seat to marketing. Many startups launched initial public offerings (IPOs), listing their stock shares on the mainstream market. Stock prices rose as people invested significant speculative capital into new companies, regardless of those companies’ profits, or lack thereof.
NDAQ 100, a popular mainstream market barometer, rose from approximately $1,000 in 1998 to $4,800 in early 2000, based on TradingView numbers. By September 2001, the NASDAQ sat near $1,100, looking back on dramatic losses — the result of the bubble’s explosion.
The NASDAQ did not spring back to life immediately, however. The decade following the dotcom bubble’s demise yielded slow and steady growth. Not all the companies from the dotcom era died off. Some grew into giants still thriving today. Amazon
AMZN came into the world in 1994, Yahoo entered in 1995 along with eBay, and Google
GOOGL came onto the scene in 1998, data from the WorldHistoryProject showed.
Eisma mentioned a similar potential situation around crypto assets. “The ‘irrationally exuberant’ 2017 speculative coin bubble was followed by the painful, necessary cleansing of the ecosystem in 2018,” Eisma said.
Riding the fad and hype of blockchain and cryptocurrencies in 2017, many startups looked to apply the technology wherever they could, regardless of feasibility.
“Many projects that had no true utility, no use case or need for a token (why do you need a token?), no need for a distributed database (why do you need a blockchain?), no product, and no realistic build out, deserved and needed to go to zero,” Eisma explained.
How does bitcoin play into the mix? “The recent halving event gave us a reminder of the original value proposition of bitcoin,” Eisma said referring to when bitcoin’s mining reward cut in half on May 11, 2020, as a scheduled part of its code. The halving essentially decreased the amount of fresh bitcoin entering the market through mining.
The final block prior to the halving, as well as bitcoin’s first mined block in 2009, showed inscribed messages on the state of the U.S. economy. “We are reminded that bitcoin is a non-government controlled, decentralized, programmable, disinflationary digital asset that could potentially serve as a store of value, medium of exchange, and unit of account for a digital present and future,” Eisma noted.
“These characteristics are valuable and timely given the current global macro environment and pandemic,” he said.
“Over time, we’ll understand that we are at the dawn of an evolution of a technological, digital monetary system where bitcoin will potentially serve as the base of a Bretton-Woods-like global digital standard.”
Disclaimer: I actively trade cryptocurrencies, as well as hold a small amount of BTC, ETH, LTC, XMR, NEO, ZEC, BEAM, BCH, DASH, LINK, XTZ and various insignificant other altcoin positions.