Or maybe there is. So what.
Many new technologies go through a bubble period when first introduced. Part of the reason we get these bubbles is due to Amara’s Law:
We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
It’s human nature to get overexcited over new technologies, and when this happens the price of anything connected to that technology gets driven up far more than is reasonable. This can continue for quite some time. The internet bubble lasted some 6 odd years.
Right now it seems like the cryptocurrency space is exploding. Many new coins have seen gains in excess of 1,000% in the past 6 weeks, as new institutional money has been entering the space and driving prices higher. The possibilities created by blockchaon, decentralization and cryptocurrencies is creating a whole new way for entrepreneurial start-ups to take on the entrenched market leaders. And it looks as if the new blockchain based projects will win in many cases, at least the ones that are nimble and fast enough to release a working platform before early investors move on to the next great thing. And make no mistake, those projects that survive and thrive are likely to be the big names of business in the next few decades.
Still, many traditional finance and economics leaders continue to warn against blockchain technology, calling the cryptocurrency explosion a bubble that is sure to pop and lead to ruin for many. Let’s have a look at some charts to dispel this flawed thinking.
That is a chart of Amazon’s stock price from its IPO in May 1997 to the high of $110.63 at the peak of the internet bubble in April 1999. In less than two years time the price of Amazon shares shot up by more than 7,000%, even though the company had no earnings and was burning through cash at an unsustainable rate. Does that look like a bubble to you?
The chart above shows the double top and implosion of Amazon stock from May 1997 through September 2001. From the highest top above $110 a share the stock collapsed and hit a low beneath $6 a share in September 2001. Does that look like a bubble bursting?
That chart above is the complete chart for Amazon up until today. The circled area is the “bubble” from 1997-2001. As you can see it is merely a blip when you can see what eventually became of Amazon shares. Zooming out like this gives us perspective. If you had purchased Amazon shares at the IPO and held them until now you would have realized a 27,500% gain, for a 39% annualized return.
As you can now see, a bubble isn’t always a bubble, or even if it is it doesn’t mean that given enough time an asset will appreciate beyond any bubble levels encountered early in the life of that asset.
20 years from now in 2038 we’ll be able to look back at the current volatility and price swings of cryptocurrencies and see that they were simply blips in what crypto eventually became. By that time various industries will likely be dominated by companies that are just beginning now on the blockchain, or companies that haven’t even been dreamed up yet. Best of all, we’ll all be benefitting from the new decentralized nature of business, finance, and the world in general. There is no crypto bubble, only a crypto future.
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