Crypto: The Dot-Com Sequel

Seriously, where would we be as a society without the internet?

The great World Wide Web, which we have grown to so heavily rely on for our education, entertainment, communication, daily finances, and even our jobs, didn’t just spontaneously burst onto the scene overnight.

It was a long and painful process for the internet to become the ever-growing colossus we know today. And it all came to a head with the notorious dot-com bubble of the late 1990s to early 2000s.

It’s curious to reminisce on the entire dot-com phenomenon and see how its pattern is being imitated by the cryptocurrency sector as we speak.

I know we have talked about cryptos frequently in the past, but this is definitely worth noting, as the digital currency market has seen some resurgence in recent weeks….

Irrational Exuberance

The dot-com bubble grew from the toxic concoction of speculative and fad-based investing, the overabundance of venture capital funding for hundreds of startups, and the failure of these companies to turn a profit or, in some cases, a finished product.

The ’90s was a period of such rapid technological advancement in many areas, but it was the commercialization of the internet that led to the greatest expansion of capital growth the country had ever seen.

Although high-tech standard bearers like Intel, Cisco, and Oracle were the organic growth-driving forces in the technology sector, it was the upstart dot-com companies that fueled the stock market surge that began in 1995.

Throwing caution and common sense to the wind, investors poured money into these sensational internet startups in the hope that they would one day become profitable.

It was a textbook embodiment of “FOMO,” or fear of missing out. Because dot-com investing had become so immensely popular, investors relinquished their tried and true fundamentals in order to get in on the next big thing. 

The bubble that formed over the next five years was fed by cheap money, easy capital, market overconfidence, and pure speculation. Valuations were based on earnings and profits that would not occur for several years if the business model actually worked, and investors were all too willing to overlook traditional practices.

Companies that had yet to generate revenue, profits, and even products went to market with IPOs that saw their stock prices triple and quadruple in just one day.

Speculators were barely able to contain their excitement over the “new economy,” creating an absolute feeding frenzy for investors.

The NASDAQ peaked on March 10, 2000, at 5,048, nearly double what it was the previous year. Right at the market’s peak, several of the leading high-tech companies, such as Dell and Cisco, placed huge sell orders on their stocks, sparking panic selling among investors.

Within a matter of weeks, the stock market lost 10% of its value.

As investment capital dried up, so did the lifeblood of cash-strapped dot-com companies. Those companies that had reached market caps in the hundreds of millions became absolutely worthless in just a few months.

By the end of 2001, the majority of publicly traded dot-com companies folded, and with them, trillions of dollars of investment capital simply evaporated.

It’s crazy how familiar all this sounds, right?

Crypto Correlation

Now, in the era of Bitcoin and blockchain, the late bandwagoners of the dot-com bubble believe they’ve been gifted with a second chance at striking it rich.

As a result, cryptocurrencies have been subjected to the same variety of irrational exuberance that plagued the dot-com era.

In the past year, cryptocurrencies have given new life to this brand of speculative behavior, led by the most notorious alpha currency: Bitcoin. We’ve seen the price of crypto tokens rise tens of thousands of percent higher than their original values.

And Bitcoin wasn’t the only one to reach new all-time highs during the crypto craze. Prices of most altcoins, like Ethereum and Ripple, were all buoyed to new heights by the increased demand from investors eager to get their share of this latest fad.

And the market’s meteoric rise, thanks to speculation and fad-based investing, had undoubtedly placed the entire crypto sphere in a huge bubble.

Just like the thousands of early dot-coms, many projects behind crypto tokens have yet to actually deliver definitive real-world value.

And the market’s incredibly high speculative nature has definitely contributed to the overvaluation of a number of cryptocurrencies.

For example, the joke currency Dogecoin has a market capitalization of over $633 million at the time of writing. It even reached over a billion at its peak — an astounding achievement for something meant to be nothing more than a parody.

The arrival of any disruptive technology always tends to shake the market. The emergence of accessible personal computing, commercial internet service providers, and better web browsing technology created the consumer market for dot-com companies.

As for crypto, blockchain and the idea of distributed ledger technology were around before digital tokens came onto the scene. But it was only recently, with the buzz surrounding Bitcoin and the introduction of platforms like Ethereum, that they found more applications and surged.

Both events, the dot-com and crypto bubbles, featured the sudden explosion of projects and ventures looking to capitalize on the technology.

In 1999, there were 457 IPOs, most of which were tech companies. In March 2000, just before the ensuing crash, there were 4,715 companies trading on the NASDAQ.

Now, the crypto industry is experiencing something similar with initial coin offerings (ICOs). In 2017, Coinschedule logged 210 ICOs, up from the mere 43 the year before, which raised over $6 billion in funding.

And lastly, both phenomena have experienced sharp climbs in stock/token prices.

Dot-com company share prices skyrocketed while the industry was still developing. Of the IPOs in 1999, 117 companies doubled their share prices on the first day of trading alone, underscoring the exuberance of the market.

Cryptos display even greater gains. It isn’t at all uncommon to see tokens rise to hundreds of times their ICO prices in just a matter of months.

These are just some of the patterns that led me to believe the crypto market’s trajectory is ultimately the same as the dot-com bubble’s. February’s correction, which saw Bitcoin’s price tumble down to $6,000 from almost $20,000, just reaffirmed it.

Other coins took major hits, too, and the total market capitalization dropped more than 60% from its peak of around $265 billion.

Recently, crypto prices have remained pretty volatile, hinting that they might not have hit rock bottom quite yet.

Some analysts even warned that Bitcoin could still go below the $1,000 mark yet…

Rising from the Ashes

Still, this raises more questions than it answers.

Are we still in a bubble? If so, how big will the bubble get? And who will be left standing after the bubble finally bursts?

There’s no set date or even a confident prediction of when this will happen. But it’ll most likely be sooner rather than later.

We must remember that the aftermath of the dot-com bubble affirmed that truly innovative organizations and technologies could weather the storm.

My colleague, Alex Koyfman, has been tracking one single altcoin throughout the entire storm so far, and it has proven to be strong and sound enough to withstand the turbulence of a bubble market.

That puts this lone coin in prime territory for investment now, before the you-know-what really hits the fan.

He recently published a video and an instructional guide on how to buy this revolutionary cryptocurrency before the fad-crazed investor mob gets hold of it.

Trust me, you’re going to want to check this out.

Click here to view his presentation.

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.