Things to Know About the "Bitcoin Bubble"
They say history repeats itself...
And if that is true, Bitcoin investors should be paying attention.
The current Bitcoin frenzy is very similar to the dot-com bubble, a major financial event that tanked U.S. markets in the early 2000s.
When the dot-com bubble popped, hundreds of technology companies disappeared, wiping over a trillion dollars from the market in under six months.
With cryptocurrency, similar events to those that created the dot-com bubble are taking place.
That is why headlines screaming "Bitcoin Bubble" are popping up everywhere. It's also why I decided to write this article.
Today, I want to talk about some of the similarities between the dot-com bubble and the current Bitcoin frenzy.
Taking a deeper look at the situation can help investors survive and profit in a "boom and bust" environment.
Let's get started.
The Dot-Com Bubble and Bitcoin
To be honest, the resemblance between the dot-com bubble and Bitcoin startles me.
The dot-com bubble was created by a four-year period of tech stock speculation. All tech stocks were selling like hotcakes. Companies were just slapping "dot-com" onto corporate logos and raking in the dough.
In these instances, there weren't many conversations about risk analysis or long-term growth.
And while there were other factors behind the dot-com bubble crash, a big factor was that many of these "tech" companies reported bad earnings and went under, affecting the whole market.
This story isn't all doom and gloom, though. Out of that bubble, many companies recovered, including Amazon, eBay, and Priceline. The technology sector has prospered. Bubbles are simply a part of our economy. They are by no means the death of an investing sector.
There was an oil bubble...
There was a housing bubble...
There was a uranium bubble...
The point is, there are bubbles. You just don't want to be the last one to hear the pop.
Which brings the conversation to Bitcoin. In the last year, Bitcoin and its underlying blockchain technology have created a market frenzy.
In the wake of Bitcoin, other tokens have popped up. Many small companies have decided to offer tokens in lieu of stock, dealing these tokens out to investors through a process called an "initial coin offering."
Because Bitcoin was so successful, many investors are willing to throw money at these new tokens WITHOUT looking at company fundamentals. Just like with the tech bubble, it is the correlation with the overall sector that is driving interest.
There is also a lot of hype, with search volume for digital currency growing massively over the course of this year. When Bitcoin broke $10,000, it was the top trend on Facebook.
That said, Bitcoin's value is nowhere near the size of the dot-com bubble. At the time this article was written, the total market cap of the entire digital currency market was $300 billion. That means there is a lot of space to grow and profit.
But there's also another key difference.
Bitcoin and select digital currencies are still remarkable technologies, regardless of what the market says. They have real-world utility, and some are already changing the way multiple sectors operate.
In the coming months, what could hurt Bitcoin is not its technology, which is admittedly older than many tokens, but its connection with initial coin offerings and other market events.
Bitcoin has become a reserve currency for initial coin offerings (as has Ethereum).
That means its price is being driven not only by speculation about its value, but also by the speculation about initial coin offerings.
As these unsavory ICOs fail, Bitcoin and Ethereum could also suffer.
Remember, the dot-com bubble didn't pop because tech disappeared forever (just a look at tech stocks shows this is very wrong); the dot-com bubble popped because people were throwing money into any company that said "technology," saturating the market.
In this case, people are throwing money at anything "token" or "blockchain."
Something will eventually give, but that doesn't mean you can't ride it on the way up.
You just need to be paying attention.
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So How Do You Prepare for the Bubble?
The answer is education.
No one is going to know exactly when the Bitcoin bubble will pop, but they can see the trembles in the water.
Those trembles come from events in the digital currency market.
Bitcoin is not a singular event. It is part of a vast and expanding network of digital tokens and ideas — some of which will produce nothing but investor misery.
If you can isolate what to look for, you have a better chance of navigating this market.
Here are a few things to keep an eye on:
Regulation: Back in September, both China and South Korea stepped in to regulate ICOs. This dealt a short-term blow to Bitcoin and Ethereum. Both tokens dipped in value after the news, showing the correlation between bigger currency tokens and ICOs. In the long run, regulation is a positive for investors because it increases safety. In the short term, regulatory moves could impact digital currency prices, as they force the bandits out of the ICO Wild West.
Exchange Failure: Have you heard about Mt. Gox? If not, then you are missing out on a crucial part of Bitcoin history. Mt. Gox was a major exchange. In 2014, the exchange experienced a crippling theft that shook the market's faith in digital currency. In the wake of Mt. Gox, the price of Bitcoin dropped dramatically. Today, investors still need to be alert to unregulated exchanges. That is why it is important to double check where you are storing your money and make sure you stay abreast of exchange updates.
Better Technologies: Bitcoin could be supplanted by a better technology. The reason the token has boomed so astronomically while others grow more sporadically is that Bitcoin is the brand name — the Downy of digital currency. It enchants beginner digital currency investors. Yet, as the market grows and investors are exposed to more technologies, Bitcoin's shine may dim.
In closing, there is no telling where the future will take us. You have to be constantly engaged to stay on top of the market.
That is why it's a good thing you're here.
By reading this, you are a step closer to educating yourself about the market. Some investors are unwilling to recognize that market bubbles and fluctuations happen. Those are the investors who will be at the party last. You, on the other hand, are taking steps that will help you navigate the market in coming months.
And we are here to help.
A year ago, Wealth Daily's senior technology analyst Jason Stutman and I recognized that something big was happening in the world of digital currencies. The first Bitcoin ETF had just been rejected, and Ethereum was completely unknown.
But we saw what many investors didn't: These technologies had potential.
That is why Jason recommended Ethereum to his Technology and Opportunity subscribers when it was below $50. That's why we have been talking about Bitcoin for over three years, even when it was trading below $35 a unit.
Over the course of this market boom, we put together an educational service, complete with a 44-page digital currency guide.
It can help investors be proactive in a turbulent market. It comes with a library of videos and reports and a monthly newsletter, spotlighting major digital currencies and events in the space.
And, for a very short time, you can claim this service for FREE. Click here to learn more.
I wish you the best of luck with your investments,
@AlexandraPerryC on Twitter
Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.
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