Bitcoin may soon rise to unprecedented heights. We just need to look at the recent history of disruptive internet-based technologies. Big tech companies, such as Amazon and Google, who undeniably disrupted the fundamentals of how we live, from the way we navigate our cities to the way we shop and work, weren’t always the titans they are today. First there was a nascent technology with limited adoption, then some market excitement, and before the final boom, a massive crash.
Bitcoin saw its massive crash in 2017, it’s time for its final boom.
Confusion or: unveiling a technology that promises to change the world but that no one completely understands yet
Much like the dot-com boom of the early 2000s, the Bitcoin and general crypto bubble from the late 2010s started with a new and exciting technology. These technologies both came with the promise of creating a new normal. For dot-com it was the internet, for Bitcoin quite frankly is Bitcoin itself, but for now let’s call it distributed ledger technology (or ‘blockchain’).
Today, Bitcoin and other cryptocurrency-enabled projects are very much in the same stage that internet-based technologies were in the late 90s. The technology is here and some use cases have been proven, but mainstream adoption is still far, and killer applications are yet to become a reality. Yes, people can buy, sell, store, and trade Bitcoin and other cryptocurrencies, but quite frankly that’s about it.
wenty years ago it was very hard to imagine that the internet would be used for more than sending and receiving emails, let alone to facilitate services provided by companies such as Google and Amazon. And yet, projects emerged during this great uncertainty and investors took a leap of faith. Today it’s unthinkable for the bigger part of the population to spend even one day without interacting with the internet. That was simply not true 20 years ago. Just to put this into perspective, only around 2% of the world population had access to the internet in 1997 (116 million people) whereas in 2019 that number was close to 54% (4 billion people).
Adoption of cryptocurrencies is still very low and is estimated to be somewhere around 1–2% (75–150 million people). Nevertheless, some regions of the world have already started to experience a significant increase in adoption. The United States, for example, has already 36.5 million crypto users, which account for over 11% of the population. Global numbers can only go up. And they most likely will, just like they did with the internet. Starting in most developed countries and then across the globe.
Excitement or: markets get overly excited and decided to throw in money without asking any questions
In the same way in which the internet saw a wave of investment fads and over excitement, driven mainly by overly ambitious and rarely rigorous Venture Capital firms and Investment Banks, cryptocurrencies saw an irrational hype driven by the rise of ICOs.
During the second half of the 90s, the importance of the internet became apparent. Internet adoption in the United States erupted from a modest 20% in late 1997 to close to 40% by the end of 2000. All this happened in a climate in which the Federal Reserve was extremely bullish and interest rates were declining, meaning capital was widely available. Eager to ride the wave of this new technological surge, Venture Capital firms, among other investors, started throwing money at all companies that had some connection, fundamental or tangential to the internet.
In the year 2000 alone, the United States saw the closing of +4,500 VC deals which accounted for +66 billion $USD, most of them related to internet companies (in 1999, 39% of VC deals were going to internet companies). In comparison, there were only ~2,700 VC deals for a total of ~55 billion $USD in 2019. Naturally, the impact in the stock market was immediate. Valuation of internet-based companies skyrocketed. The Nasdaq quickly rose from 1,000 to more than 5x its value in 2000. The bubble was getting fatter and fatter.
ICOs first started in 2013 with MasterCoin, became relevant in 2014, when the today titan Ethereum raised 3,700 BTC to give life to the project envisioned by Vitalik Buterin to conquer Bitcoin, but only really became popular until 2017. That year, there were +6,000 ICOs which raised ~120 billion $USD. The market was getting heated and just like Nasdaq exploded in the late 1990s, the price of Bitcoin, along with that of other cryptocurrencies, started climbing at unprecedented speeds in the later part of 2017. Everyone loved the idea of easy money.
Anxiety or: companies emerge everywhere and fight fiercely for attention trying to capitalize on the wave of irrationality
When money is widely available and no one is asking questions, everybody wants to join the party. Both in the dotcom and the cryptocurrency booms, investors became dogmatic and stopped being rigorous about evaluating investment opportunities. They only knew the wave was raising and they didn’t want to miss it. Knowing this, both dotcoms and alt-coins threw money into outrageous marketing campaigns rarely thinking, if at all, about creating value for end-customers and building successful businesses models. The main objective was to create visibility and raise awareness.
Dotcoms attacked the mass media, while in pure 21st century style, alt-coins and ICOs used influencer marketing as their weapon of choice. Culminating the rise of the internet bubble on January 30th 2000, Super Bowl XXXIV had it’s main stars off the field, when a total of 17 dotcom brands, including the today infamous Pets.com among others, appeared in the big game. Almost 20 years later, in the break of 2017, celebrities such as Floyd Meywether Jr., Paris Hilton, and DJ Khaled, were frequently seen on Instagram and other social media platforms backing new alt-coins under the promise of being the next big thing. In both decades, money was still coming easy and new projects kept piling up.
Fear or: frauds and weakness in the business models of most companies are exposed and the bubbles burst
Both bubbles eventually burst of course. Most internet-based companies, despite having arguably good business ideas, just didn’t have the ability to be profitable or even to create revenues. The focus was on selling an idea and as such money was mainly used for that. When debt of highly leveraged dotcom companies was due, the burst of the bubble became imminent. As of alt-coins and ICO backed projects, countless frauds and scams emerged. Most of these ‘innovative projects’ were most of the time just fancy web pages, with poorly written white-papers explaining their ‘disruptive idea’, and profiles of the founding teams (in which it wasn’t uncommon to see — fraudulently of course — Vitalik Buterin and other respected figures in the space).
Markets in both time frames realized something was seriously off and punished projects indiscriminately. Ultimately, it was very hard for most investors to distinguish between good apples and bad apples, they simply knew most of them were rotten. Soon after its peak, the Nasdaq lost around 75% of its value by November of 2001. Even noticeably successful companies today took massive hits. Amazon, for starters, lost close to 90% of its equity value by the end of 2001. In similar fashion, by September 2018 the market capitalization of cryptocurrency projects lost ~80% of its value. This of course impacted harshly fraudulent projects, which vanished into thin air, but just like Amazon in the 2000s, Bitcoin also took a hit.
Success or: the smoke settles down, and strong projects deliver on their promise to change the world
The internet has it’s story resolved. Now we know the technology is real, is powerful and it’s here to stay. After it’s initial crash in the early 2000s and the challenges of the 2008–2009 crisis internet-based companies made a comeback. And wow, what a comeback it was. In fact as of 2019, seven of the top 10 biggest companies in the world by market capitalization were mainly internet-based companies. Two of which, Google and Amazon, the third and fourth largest companies in the world in market capitalization as of August 2020, took their first steps during the dot-com bubble. The Nasdaq composite today stands stronger than ever at more than 5x its post-bubble level.
The story of cryptocurrencies and Bitcoin hasn’t had a resolution yet of course, but the industry is already weeding out scams and projects that are lacking strong fundamentals. This will make it easier for investors to assess real opportunities. Right before the crash of the cryptocurrency bubble in June 2017, close to 20% of the industry market capitalization was scattered among more than 6,000 alt-coin projects (most of them marketed via ICOs) while only less than 40% belonged to Bitcoin. A lot of money and trust was flying the wrong way. Soon after the market started to settle down after the cryptocurrency bubble, Bitcoin regained dominance and today accounts to close to 60% of total market capitalization. While there are still questionable projects out there, Bitcoin has started to reclaim its seat at the head of the table.
The bottom line? Markets don’t know how to assess disruptive technologies right from the get-go and make mistakes at the beginning. The smoke is settling down now. Bitcoin is coming.
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This is an opinion article and by no means should be considered investment advice