The Dot-com Bubble incident: Will Cryptocurrencies Meet a Similar Fate?

The total market capitalisation at the end of 2017 was over US$ 587 billion while currently, it has stabilised to about US$ 200 billion. While the market capitalisation suffered a reduction, the bitcoin dominance has increased significantly from 38% at the end of 2017 to about 51% in 2018.

Because of this rise and fall of bitcoin and other altcoins, many of the crypto enthusiasts and experts have begun to speculate whether it is heading towards another dot-com bubble.

What is the dot-com bubble?
The dot-com bubble was an incident that happened in 1997, peaked in the year 2000 and ultimately burst by 2002. Common sense was very much rare from 1997 to 2002. The investors started to invest in whatever technology company they pleased.

They didn’t care about whether the company is currently profitable or whether there is future profitability. During this period, the prices increased five folds only to decline by five folds, eventually returning to the pre-boom levels from 2000 to 2002.

The 9/11 terrorist attacks further exacerbated this decline. Only 50% of the companies survived the bubble. There have been many success stories as well as failure stories.

One of the most famous failures is arguably 1999 founded, dot-com enterprise, Pets.com, Inc. The San Francisco based company had a market cap of over US$ 300 million but lost all of it within 268 days.

One of the most famous success stories is arguably 1994 founded, electronic commerce and cloud computing company, Amazon. The company suffered a massive decline from US$ 100/share to US$ 7/share. However, it quickly increased to US$ 600/share after that.

Can cryptocurrencies face the dot-com bubble in the future?
There are 1,988 cryptocurrencies in the market at the time of writing, and this necessarily means that there are 1,988 options for crypto investors resulting in hype in the market. This hype can cause the investors to put their money in these cryptocurrencies without even researching on whether it is legitimate or not. The entire cryptocurrency market can collapse as a result of this, essentially becoming the new dot-net bubble.

If you observe Apple’s and Amazon’s charts during the dot-com bubble period and compare it to Bitcoin’s current state, you would notice a pattern. You would first see a parabolic price increase, then the peak or a massive sell-off, a rising channel and ends at the complete collapse of the price.

There is a parabolic rise consisting of media attention, enthusiasm, delusion and greed and exists even in the cryptomarket space. Cryptocurrency has been getting a lot of media attention. Many people are enthusiastic about the crypto world. Because of the hype generated by cryptocurrencies, people have been greedy and delusional towards it.

Altcoins have increased to above 100s of per cent at the end of 2017, and it was never corrected. A recent example of greed is the stock exchange of the photography company, Kodak. The company has experienced a stock increase from US$ 3 to around US$ 1,330 after their blockchain platform release announcement.

During the dot-com bubble period, companies would either change their name or claim that the company is creating a website experience resulting in a massive stock increase. In simple terms, history continuously tries to repeat itself.

Human emotions have continued to influence the market ever since it came into effect. Human emotions like fear and greed have become very predictable. The said predictability resulted in the creation of powerful technical analysis.

Cryptocurrency has undoubtedly witnessed the greed and delusional stage and probably headed to the capitulation stage. Cryptocurrency experts predict that the altcoins will experience a lower high then a lower low shortly.

Another noticeable similarity between the dot-com bubble and the cryptocurrency market is the appearance of new companies in the market. As more and more companies join the market, we will see 100s more of ICOs and new cryptocurrencies in the market every week or probably every month.

You will witness the majority of these new companies fail in the crypto market just like the companies that failed during the dot-com bubble period. The current crypto market will be completely different in 5 years which will be completely different in 10 years and so on.

In conclusion, it has become self-evident that cryptocurrencies, in general, are here to stay but it will face significant changes as time moves forward. It is highly probable that 98% of the coins in the market will fade away as they lose their liquidity just like the stocks in the dot-com bubble.

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