As cryptocurrencies’ value climbed in 2017, many onlookers predicted a rapidly inflating investment bubble. Each new price hike brought additional bubble prognosis, and any dip in value had pundits scrambling to declare that the bubble finally burst.
For example, in December 2017 crypto markets experienced a sharp pullback that dropped the collective cap by more than 25% in a matter of hours. After months of near continual growth, this rapid descent was shocking to investors, and skeptics had plenty of ammunition to decry the crypto bubble. Of course, coin prices quickly recovered, going on to reach all-time highs later that month.
That hasn’t stopped crypto bulls from expressing incredulity. In a February 2018 interview with Bloomberg, Nouriel Roubini, dubbed “Dr. Doom, decried Bitcoin as “The biggest bubble in human history.”
Now, after six months of near continual decline, cryptocurrencies are finally starting to reach bubble bursting scale.
Crypto Close to Matching Dot-Com Bubble
Cryptocurrencies and their accompanying blockchain technology are frequently compared to the dot-com boom in the 1990s. Burgeoning new technology and an abundance of entrepreneurial confidence encouraged hundreds of startups to capitalize on this new opportunity to create a new, digital economy.
An analysis by Time found that the value of the Nasdaq investment exchange increased five-fold between 1995 and 2000. Ultimately, the dot-com crashed to produce a peak to trough tumble of 78%.
Currently, Bitcoin is down 70% from its peak price, which places it in range of the dot-com bust. The preeminent digital currency has consistently struggled to regain lost ground this year, and it’s possible that additional headwinds could push its value down to dot-com levels.
Meanwhile, altcoins continue to struggle, which only increases comparisons to dot-com companies like Pets.com, which rose to prominence on the internet wave before crashing in spectacular fashion.
However, none of this is entirely unexpected and the crypto community hasn’t been shy about the probability of unsuccessful projects.
Last year, Ethereum co-founder, Vitalik Buterin, predicted:
“It is an established fact that ninety percent of startups fail. And it should also be an established fact that 90 percent of these ERC20s on CoinMarketCap are going to go to zero.”
In February, Buterin reiterated this on Twitter, reminding investors that cryptocurrencies are a “hyper-volatile asset class.”
Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time. Don't put in more money than you can afford to lose. If you're trying to figure out where to store your life savings, traditional assets are still your safest bet.
— Vitalik "Not giving away ETH" Buterin (@VitalikButerin) February 17, 2018
In the long run, comparisons to the dot-com bubble aren’t quite as incendiary as it may seem. While some projects flamed out, others, like Amazon and eBay, ultimately became pillars of the modern economy. The Nasdaq recovered, and the online marketplace is the de-facto expression of the digital age.
The prevailing lesson is that change is iterative. Each development is a chapter in a broader story, and some are more compelling than others. Crypto’s story is still being written, so while it’s worth calculating the merits of every rise and fall, it’s also important to consider the whole story as well.
Cover Photo by Alex Knight on Unsplash