What the dot-com bust can teach us about the cryptocurrency crash

What the dot-com bust can teach us about the cryptocurrency crash – Mail Bonus


Economist Benjamin Graham, known to some as the father of value investing, once likened the market to a short-term voting machine and a long-term weighing machine. Although Graham would probably at best have been skeptical of cryptocurrencies and his built-in fluctuations he would have lived to see it, his economic theory nevertheless applies to certain aspects there.

Since the advent of altcoins, the blockchain space has functioned almost exclusively as a “voting machine”. Many projects have largely been financially unsuccessful and even detrimental to investors and space in general. Instead, they have changed the code in a memelord popularity contest and their success in that field can hardly be underestimated. Sometimes this competition is based on who promises the best future use case – but whether that future actually comes is another matter. It is often based on who markets themselves best, through sophisticated-looking infographics or ridiculous symbols and a series of related “dark” memes. Whatever it is, the success of most projects is based on speculation and little else. This is what Graham was referring to as the “voting machine”.

So, what’s wrong here? Many savvy people have made life-changing money while playing the game and the constant talk of funding and building potentially world-changing distributed technology is the norm, so it seems like space could be an ideal environment for founders and developers, right? It’s not. This success has often come at the expense of unsophisticated, desperate newcomers to investing. Moreover, most of the valuables end up in the hands of nearby so-called vaporware merchants who spread little more than false values ​​and false promises. So, where is Graham’s weighing machine and when does it start to use its power? As it happens, right now.

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The cryptocurrency crashes against dot-com bubbles

The dot-com sphere is an ideal historical example for our purposes. The two spaces share the fascination for shoehorns to develop technology into non-existent problems, excessive access to capital, ambitious promises without hard technology to support them, and finally, a gross misunderstanding of what this is all about even by the investor (see domain requirements for pets.com, radio.com, broadcast.com, etc.)

Why did these companies ever get grace? Simply because they had obvious names. If the heaviest investors do not understand what they are buying but want to join the party, why not choose a name?

Connected: Do you still compare Bitcoin to the tulip bubble? Stop!

What’s more, the numbers are incredibly similar. Let’s put this in context:

  • In 2000, the points sector peaked at $ 2.95 trillion. At the time of writing, this is $ 4.95 trillion.
  • It then fell to $ 1,195 trillion. At the time of writing, this is $ 3.27 trillion.
  • The total market value of cryptocurrency reached 2.8 trillion dollars. Based on inflation, that would be $ 1.67 trillion in 2000.
  • It is now at a low of $ 1.23 trillion. In terms of inflation, it was 0.073 trillion US dollars in 2000.
  • The delta between the maximum point-com bubbles is 59.5% from high to low.
  • The delta between the maximum current cryptocurrency bubble is 56% from high to low.

Inflation will distort this slightly, but give yourself a moment to consider that Apple alone has a market capitalization of $ 2.45 trillion at the time of writing. One stock in the technology sector has the same market value as the entire cryptocurrency sector and half of the points sector when adjusted for inflation.

Speed ​​fluctuates

As gloomy as this downturn may seem, this is not a tragedy. Imagine knowing that the bottom of the market has been reached for the technology sector, for example in 2003. People were convinced that the technology sector was on its feet. Of course, the numbers above could (and should) be taken with a grain of salt, and one might remember that history does not always repeat itself exactly – instead it rhymes. Since I entered the blockchain space in 2016, I have watched it move faster than almost any other financial sector. The necessary patience to wait for a downturn in the cryptocurrency requires much less serenity than the waiting time between 2003 and 2010.

In recent months, cryptocurrencies have simultaneously pulled the shortest straw from macroeconomic forces and experienced another “black swan event” such as Mt. Gox, the crypto winter of 2017–2018 and 2020 collapsed. This time it was Terra collapsed.

Each of these events caused the death penalty, destruction, plague, and death for the average investor; yet somehow developers continued to develop, miners and knot companies continued to operate and smart money continued to buy. (Funds like a16z, StarkWare and LayerZero raised about $ 15 billion in total recently). Why? Emotional decisions that affect one group do not necessarily affect all of the others. One of these datasets is dependent on it but the other has conquered it. These are individuals and individuals who do not feel bad about beating you. They do not feel bad about making you lose money. They do not feel anything until they have realized the loss – period. In other words, emotions must be removed from the equation with respect to decision making.

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How the Terra story affects you and what comes next

Chances are that the Terra collapse will continue to wreak havoc on your portfolio and peace of mind. At the same time, the classic Stoic investors are raising their heads, after selling the top just a few weeks ago and dropping you to a 70% loss. But do not despair. Take a look at the history of the internet and consider it instead. It’s hard to say exactly where we are in the cryptocurrency marketing process and how far we are from when it actually cuts the fat. However, we seem to be very close and things are going much faster than the dot-com sector did.

All of this creates a fairly simple framework for some intelligent long-term investment plans – especially if you notice how more and more average users are adopting Web3. If broadband were the motivating event that led to a huge increase in users, I would argue that an easy-to-use Web3 wallet that requires no setup to communicate with multiple blockchains would be a analogous event to encryption. Interestingly, Robinhood recently announced that it would release a simple to use Web3 wallet very soon. When such a solution comes along that allows for Web3 communication with just a few clicks, the floodgates open completely.

From there, it’s a matter of deciding what the blue tiles that are in the top 20-30 market value of cryptocurrency will be, and then buying and simply showing patience. The problem is that there is no collateral, except in retrospect, and the closer the market approaches maturity, the less prosperity there is for the investor. The most sensible thing to do is take your time and approach investing in a new space like this with a clear, defined strategy.

This article does not include investment advice or advice. Every investment and trading business involves risk and readers should do their own research when making a decision.

The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the views and opinions of the Cointelegraph.

Axel Nussbaumer is the vice president of digital asset management at Blockmetrix, a Bitcoin mining company in Dallas. Prior to pioneering in 2015, he studied business administration at Southern Methodist University and worked for Texas-based private limited companies. In 2016, he focused on blockchain technology. His early interest in and involvement in the space has led to many successful investments and extensive experience and knowledge, which he has shared in publications such as Nasdaq and Forbes.