Many compare this current Crypto craze to the dot-com era. Having lived through the dot-com bubble, I must admit some things are eerily familiar. But just how similar are they and is there anything different about crypto? Let’s take a closer look.
DOLCE VITA!
The dotcom bubble started in the late ’90s, as buzz about the internet started to grow and computers started to become more than a term from a Star Trek episode. Online commerce was one of the biggest drivers of this growth and it attracted whale investors from around the world.
As excitement for this new found industry grew so did the value of the stocks. The NASDAQ, home of the tech stock, quickly went from 1,000 points to over 5,000 in under 5 years. IPOs became the new buzz word attracting 100’s of millions of dollars, with stocks sometimes doubling on the first day. It seemed like anyone with a tech background and good idea could make a lot of money.
Stop, wait…… Does this sound eerily familiar yet? But wait there’s more.
ALL GOOD THINGS MUST COME TO AN END
Early in the year 2000, a change was felt in the air. With the NASDAQ at a $6.71 trillion market-cap, a crash began. In just 27 days, nearly a trillion dollars worth of value had disappeared. Why such a drastic drop? As earnings season hit, companies recently valued at 10’s even 100’s of millions of dollars started reporting losses of more than they were worth. It soon became evident that many of these companies would fall short of their lofty expectations.
Companies started falling like dominos. The media had a hay day putting more and more FUD into the markets. It got to a point where any company remotely connected to technology was thought to be a high-risk investment.
So far this is making crypto look like a bad remake of a classic movie.
ARE WE SEEING HISTORY REPEAT ITSELF?
Though it might seem like history is repeating itself there are some major differences this time around. One main difference is, crypto has no ease of access.
If you’ve been associated with crypto for any period of time one thing has become evident, it’s not so easy to buy, sell, store or even understand how to use it. Another issue surrounding crypto is its overall negative tone. Whether it’s about scams, hacks, illegal activity or government regulations, the bad aura seems unending.
Believe it or not, all of this is actually a good thing for crypto. Why? Because it has kept 98% of the world’s population far away. That’s not to say more people won’t get involved. In fact, record numbers of people are getting involved with crypto each day. Unlike the dot-com era, crypto is being adopted at a much slower rate because it’s not as easily accessible or appealing the average investor.
A COIN IS NOTHING LIKE A STOCK
Another big difference is most crypto coins are nothing like stocks. What do I mean?
A stock represents an ownership interest of a privately or publicly held company. Additionally, the value of a stock is directly tied to that companies assets and earnings. A stock price can go up or down, but at the end of the day, it’s only worth is based on what the company can be bought or sold for.
Crypto’s however, are much more complex than stock. A crypto coin can serve multiple purposes and functions. While these coins do in some ways represent ownership the buck doesn’t stop there. The purpose they serve comes in various ways, from smart contracts to being an integral part of the overall technology. Some coins are so diverse they can be used by other technologies where they seemingly take on a life of their own.
Because of their unique characteristics, a coin's value is not simply tied to earnings or assets. In fact, many coins can actually be used to purchase goods and services, try doing that with a stock certificate.
WHAT ABOUT VALUE?
One thing that mainstream financial gurus can’t understand is how something like a coin can have value since it's not directly attached to earnings or assets. Really though, is earnings and assets the only thing value is based on? Think about things like gasoline, electricity or even hot water. Why are these things seen as having a value? Isn't it because these are things people either need or see as being useful. The same can be said of cryptocurrency. Many people need it, others see it as being useful, which creates demand as demand turns into value.
This means that the value of crypto is not tied to earnings or assets but its value is based on usefulness. The more crypto is used, the more valuable it becomes. If you think about it, this if really capitalism in its purest form.
This is one reason mainstream has such a hard time with crypto valuations. Somethings value measured by usefulness? How absurd!
WHY THE CRYPTO ERA IS NOT THE DOT BOMB ERA
When the dot-com bombed, 99% of everyone with money was fully vested and leveraged to the max. Since stock price is tied directly to company earnings while serving no other purpose, as earrings went down so did the house of cards.
As previously discussed, cryptocurrency is not tied only to earnings and assets but its value is directly connected to its use and acceptance. Whether or not a company is making lots of money, is a non-factor, as long as it has enough to operate. How do we know this to be true? Currently, many very valuable coins have no company or owner. How do they survive? They survive because their value is based on usefulness and acceptance so the communities keep them alive.
WHAT DOES THIS MEAN GOING FORWARD?
Though there are major differences between stocks and coins, there are still some things that will likely play out the same way.
Yes, coins aren’t tied to a company’s earnings but their value is still based on something, use and acceptance. This means that just like in the dot-com days, there will be winners and losers. The reality is, as with all new industry booms, though all companies have big dreams and aspirations, the vast majority will fail. Over time, a coin's value will live or die according to its usefulness and acceptance.
This means it’s extremely important to DYOR (do your own research) because your success will be directly connected to the success of each coin you buy. Investors have a saying in a dull market, they call it, a market of stocks. What they mean is, though some stock prices will fall, the good stocks eventually go up over time. This same thing applies to the crypto industry today.
In the end, there will be coins similar to what we now know as Amazon and Google. These coins will rise out of the flames and turn into a 900lb gorilla! The big question is, which coins will these be?