Introduction
‘Whales’ are the people who act as the major players in the crypto space currently, they have several millions of dollars’ worth of cryptocurrencies in their possessions. According to the “old school” financial terms these people are also known as High Net Worth Indivuduals (HNWI) trade in the market
And the term “Whale” is used because whenever they invest or trade in the market they create some huge waves in the ocean(market) as they transact with huge volume of money.
Let’s understand who are these “Whales”?
• Early adopters of Bitcoin and other altcoins.
• Venture Capitalist- these are the investors who either provide capital to startup ventures or funds the small enterprises or companies who wish to expand the business but don’t have any access to equity market
• Cryptocurrency hedge funds
• Investment bankers
• Retail investors- general people
And the most noticeable part is the majority of the market is predominately ruled by the Retail Investors, also Known as “Mum & Dad” investors.
These institutional Investors are the real WHALES, because the amount of money they handle is huge as compared to the crypto marketspace.
For example, Pension funds control around trillions of dollars of asset which is way beyond the crypto market capital.
Crypto Market vs Stock Market:
Similarities:
• Both the market crypto and stock functions the same way.
• The price of both the market is determined by the demand i.e. how much people are willing to invest on shares and cryptocurrency. i.e. more investment more hike in price and vice versa.
• Both of them can be valued based on the idea behind them. A stock is based on the business behind it and a currency is based on the idea, but the value in both lies behind the idea to some extent.
Differences:
• In the stock market one actually invests in the company, where as in the cryptocurrency market one invests in the technology or the currency.
• Crypto currency market acts faster than the stock market i.e. Prices go up faster, prices go down faster, prices change at larger magnitudes.
• Market manipulation is something that doesn't really exist in the stock market in that extent, however, in the cryptocurrency market it definitely does.
• New competitors can enter so easily in the cryptocurrency market, old currencies die much faster than old businesses die in the stock market. There is no reason for hundreds of cryptocurrencies to exist, where as there are reasons for hundreds of businesses to exist.
The Dotcom Crash (2000-2002)
When: March 11, 2000 to October 9, 2002
Where: Silicon Valley (for the most part)
How Much: The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11.
The Internet commercialized in 1995, creating a speculative bubble from 1997 to 2000.
The dotcom bubble started around 1997 peaked in 2000 and ultimately burst by 2002, in the late 90s the dot-com bubble started to grow as the internet become the part of people’s daily lives. No technology in history has ever spread so far and so fast to too many people this is the story of the bubble that people thought would change the rules of economics until it bursts.
As the internet grew new companies started to emerge within it mostly online retailers like pets.com and Amazon.com not all of these companies focused on sound business models, but it did not matter to investors, they went crazy into the internet excitement and they figured that at least one business had to succeed. Investors are so excited about the progress of the internet that they invested in pretty much any tech company with a pulse. They stopped caring about whether or not a company was profitable or at least could eventually become profitable. Common sense become rarity, from 1997to march 2000 prices went up about five times and only to go down 5 times and return to their pre-boom level from 2000 to 2002.
Competition and speculation pushed investors to pay significantly more for dot-com stocks than their fundamental value which sent IPOs soaring e.g. Mark Cuban’s broadcast.com stock rose from $18 to $62 during its IPO, Amazon originally offered at $18 enclosed at over $100. Companies like eBay, GeoCities, pets.com saw the same drastic growth. Overall Nasdaq grew from 1000 points in 1995 to over 5000 points in 2000 with little inflation. But the difference between perceived value and actual value created the market bubble
On 10, March 2000 Nasdaq worth 6.71 trillion dollars and the next day everything changed. The dot-com bubble bursts and the market went into freefall, in less than a month a trillion dollars of stock value deflated. By October 2002 The Nasdaq had lost 78% of its value, only one of the two internet companies survived with businesses such as pets.com going from a market capitalization of over 300million dollars to zero within just 268 days on the other hand there was Amazon, which went from around 100 dollars during the bubble peak all the way down to 7 dollars after it bursts, and climbed backed up to 600 dollars per share
Conclusion: the dot-com bubble is a fascinating human nature lesson.
Japanese Real Estate and Stock Market Bubble.
It is a nationwide financial economic phenomenon that happened in japan in 1980s. it was also known as Japanese asset price bubble.
In 1970s japan was a very successful in its electronic industry they even expand their business in worldwide, dominating the global market of electronic products such as pocket-radio, Walkman etc. which was everything except the CPU chip which was dominated by America. With this japan was crowned as the “King of the Global Electronics”.
Due to the good economic environment, the living standard of the country rose up. The economic growth graph rose up sharply, making people very optimistic about the economy, which initiated the trend of investing.
In 1985 the American currency valuation was high which lowered the competitiveness, they decided to interfere the currency market by Plaza Accord with Germany, England, France and Japan. Japanese Yen started to increase its value in a rocket speed, turning from 1Dollar=220 Yen, to 1dollar =150 yen in a short period of time. The great change of exchange rate affected the American economic. Investors left the American market and turned towards japan. A large amount of money had flown to Japans economy, with the high rising Yen value the net export has fallen and the bank of japan had to use low interest rate policy and monetary easing. This action stimulates the investing motivation in japan which triggered the formation of a bubble.
Stock market and land value started to thrive, more investment was made. People thought that the land will not devalue. Banks wanted to make more money so they lend more money to people who owned a piece of land. People and institutions had aggressive behavior without adequate risk management. The cycle sustained for 4 years until it reached the saturated point where the land value cannot rise any more. The government realized that there is a big asset bubble. The Bank of Japan decided to tighten the monetary policy and soon after the bubble crashed.
The Nikkei Index fall from its top point to less than half of it in less than a year the land value also declined. Loans with credit to land that were given to people become bad loans. Which severely damaged the banking system and the economy of Japan. People tried to withdraw money from the market. Companies went bankrupted or survive relying on governments subsidy. For normal citizens, the amount of money they invested were more than the amount they can earn throughout their lives.
The bursting of the bubble contributed to what it is called “Lost Decade”.
Verdict:
Pros:
• The stock market and crypto markets are divided into different types of people. The stock market is comprised mainly of institutional investors, while individual investors dominate crypto markets. Although the stock market isn’t directly tied to crypto markets but still there exist a co-relation between both the markets.
• Losses and higher risk are much more significant when choosing the crypto market.
• Institutional investors can directly provide capital to small firms and startups which can maximize the crypto space efficiency.
• Cryptocurrency industry aims to build a 100% decentralized space. In order to build the blockchain infrastructure it requires trillions of moneys. In this case institutional investors are the only major group which can bring a revolutionary change in the crypto World, as most of the money is concentrated I the hand of institutional investors.
• These institutional investors can trade in the Dark Pool, where they can trade shares and assets through hidden order book. Using dark pool will not create a massive wave in the ocean and thus, may prevent bursts.
Cons:
• In the case of dotcom bubble 2002 we have seen that investors started investing without thinking much about the future. people started investing based on common sense. If we relate dot-com bubble with current bit-coin market. It can create similar burst as dot com bubble. And if institutional investors started investing within a night the total market capital will touch such heights that there can be a chance of burst and the whole market will fall.
• Cryptocurrency industry are trying to integrate with every sector in the economy. Which can be considered as a positive and negative act. If institutional investors started investing in this crypto space the share value will get affected. And if there is a burst it will affect the retail investors and all the other companies.
• If institutional investors invest that huge amount of money everything in the crypto space will shoot up crazily retail investors, will have Fear of moving out. And they will get in action causing prices to surge even higher which may in turn create a burst in the crypto space.