With the cryptocurrency market in the red, many are fearing that the whole thing was a bubble and it has burst. But is the crypto market in a bubble, and is the current price drop a crash? To understand this, one needs to compare the current cryptocurrency scenario with the dot-com bubble in the 1990s.
The similarities between the crypto craze and the dot-com bubble
One of the key similarities between the two is that they are both anchored on a fundamentally sound technology. The dot-com bubble came up as a result of the rise of the internet. The internet as a technology innovation was strong, and has changed the way we live; in unimaginable ways. The same can be said of the latest crypto craze. All crypto coins are anchored on the revolutionary blockchain technology.
Blockchain technology’s ability to create trustless systems is guaranteed to revolutionize the world, just like the internet did from the 1990s to date. In essence, the current situation in the crypto space, can be equated to the dot-com bubble. However, just like the two have similarities, there are also striking differences between them, which might raise questions of whether the current crypto craze is really a bubble.
What are the differences between cryptocurrencies and the dot-com bubble?
One of the fundamental differences between the two is in the world-view of their founders. During the dot-com bubble, many company founders were using the money raised to live extravagant lives. To them, the IPOs at the time were an end in themselves. This is quite a contrast to the crypto space where most company founders seem keen to improve on their products. In essence, there is a good chance that most cryptocurrencies out there are thriving not just out of market hype, but also on the strong leadership and visions of those behind them.
Cryptocurrencies also differ from the dot-com bubble in the sense that they are driven by retail investors, unlike the dot-com bubble that was driven by institutional money. The problem with institutional money is that it is focused solely on profits. As such, any jitters in the market leads to capital flight. This is what in part led to the dot-com bubble burst. On their part, cryptocurrencies are driven by retail investors who seem to have a strong attachment to the coins that they invest in.
As such, rather than view the coins as just speculative assets, they have attachments to them, and want to hold on until the projects succeed. This means cryptos are unlikely to go the way of the dot-com bubble companies.
So are cryptocurrencies in a bubble?
While there are similarities between the current situation in the cryptomarket and the dot-com bubble, the differences are stronger. Cryptocurrencies may be a little bit overheated right now, but clearly most of the coins that are performing well are here to stay. In fact, cryptocurrency adoption is still very low, and as they get more adopted, prices will shoot up over the years!