Many have previously critiqued the meteoric rise of cryptocurrencies in the global market as akin to the Dot-Com bubble of the early 2000s when massive speculation concerning internet-related IPOs caused the market to swell epically, followed by an massive correction of about 78%. Millions in investment were lost, many investors losing incredible chunks of their personal worth.
The parallels with the blockchain world are clear. A vast majority of ICOs were scams with only a tiny percentage making their way onto public exchanges. The bubble of hype popped in early 2018 and caused most coins to fall 50% or more in value. Billions were poured into these startup gambles, for the most part wealth that was accrued over several years in the BTC market. As Bitcoin and Ethereum rose to unprecedented highs over the course of 2017, many resorted to ‘reinvesting’ their gains into the newer parts of the promising market. This proved somewhat deadly in the short-term, nurturing a fanaticism that caused new investors to join during all-time-highs. Millions in investment were lost again.
Here’s a segment about the Dot-com bubble’s environment at the time as described by Investopedia and see if you can imagine replacing some of the vocabulary with ones that exist in the crypto space -
Companies underwent a similar phenomenon to the one that gripped Seventeenth century England and America in the early eighties: investors wanted big ideas more than a solid business plan. Buzzwords like networking, new paradigm, information technologies, internet, consumer-driven navigation, tailored web experience and many more examples of empty double-speak filled the media and investors with a rabid hunger for more. The IPOs of internet companies emerged with ferocity and frequency, sweeping the nation up in euphoria. Investors were blindly grabbing every new issue without even looking at a business plan to find out, for example, how long the company would take before making a profit, if ever.
It’s almost as if reading a description of the last several months. The similarities in price action between the recent crypto market and historical examples of stock plummets are uncanny and one thing seems to be clear.
Bubbles are good.
Venture Capitalist Fred Wilson, who lost 90% of his net worth during the Dot Com bubble, had this to say about his and his colleague’s experience -
“A friend of mine has a great line. He says ‘Nothing important has ever been built without irrational exuberance’. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases, and server structure. All that stuff has allowed what we have today, which has changed our lives … that’s what all this speculative mania built.”
Any transformative technology needs an initial craze to push it into the public imagination. Imagination then often trumps reason and causes unprecedented growth and investment. That investment cannot be adequately substantiated at that young phase of development and causes reverse mania. And though things might plummet in price and backtrack in terms of public acceptance, it all lays the groundwork for very actionable experiences and takeaways.
The Dot-Com bubble might have been catastrophic for many people, but it also allowed many more access to revolutionary technologies and even their direct profits. I fully suspect that same thing to happen in the crypto space where we all know, as some of level of “investor” in the Steem blockchain, that despite the lull of media hype, the market and community in the blockchain space is growing rapidly.
I came across this Quora question asking if the hype and opportunity of Bitcoin and other cryptos had gone past invest-ability and really enjoyed the response by crypto writer Nele Maria Palipea -
Despite the markets correcting some 60%, new ideas, projects and real life use-cases are being invented and added every single day. So the difference between this correction and all the other corrections in the past is that the scene is experiencing activity never seen before.
Even though the market is shrinking in terms of dollar value, the base and backbone of the industry is actually expanding rapidly.
This strong base forming underneath the market means that we will likely see a much faster comeback for cryptocurrencies compared to before — and are not likely to see the kind of long cool down period witnessed after the last major correction.
All in all, I’m fairly relieved in hindsight to see the market correct as it did and set itself up for a better brighter future. It started to weed out the pump n’ dumpers, the fearful “investors,” and raised great awareness concerning how to be more discerning around ICOs (see image below). Though this means a cut in our profits in the short-term, it will likely equate a more healthy ecosystem in the long run.
Let me know what you think, Steem on!
