LUCKNOW (CoinChapter): The ongoing meltdown in the crypto sector is reminiscent of the dot com bubble era of the late 90s, according to Jerry Fragiskatos, the chief commercial officer of Input Output Hong Kong (IOHK).
“The long game is the game. When I first started like four years ago, I said we’re in the ’90s of the Internet. We’re probably in the dot com right now, ’99 to 2000,” the executive told crypto analyst Scott Melker in an interview.
In detail, the dot com bubble era refers to a period between 1995-2000, when technology firms grew exponentially amid the so-called internet boom. However, many tech firms failed to turn out a working product despite attracting hundreds of millions of dollars in investment, leading to a bubble burst.
Notably, a handful of companies survived the downturn, including Amazon, Alphabet (earlier called Google), and Cisco. Fragiskatos notes that the cryptocurrency sector has been witnessing a similar outcome.
What happened during the dot-com era?
In addition, the Federal Reserve raised interest rates several times during the dot-com bubble burst in 1999 and 2000. Their hawkish turn prompted investors to pull money out of speculative assets. Also, Sentiment continued to weaken following Japan’s recession, infamously called ‘the lost decade.’
When capital began to dry up, many internet companies, built on weak financials, could not sustain the sell-off. In 2002, Wall Street’s NASDAQ crashed by 78%, foregoing aa gains made during the bubble. Several companies went bankrupt. Millions lost jobs.
Similarities in crypto
Coming to crypto, a few similarities can be seen from the go. Blockchain technology, made popular by Bitcoin, proposed to change the financial landscape, just like the Internet did.
A record number of capital inflows were seen in crypto once the 2010-2011 bull run propelled Bitcoin into mainstream markets. Several crypto startups began to emerge, offering important real-use cases. VCs, angel investors, hedge funds, and even pop icons jumped onto the bandwagon.
In terms of price, 2021 was Bitcoin’s best-ever year. The king coin’s valuation soared to $69,000 in November from 29,000 n January – a jump of 138%. Meanwhile, Cardano’s valuation peaked at $87.6 Billion and eventually broke into the top 10 largest projects by market cap.
However, the tide began to turn in late 2021 due to fears of a global economic recession. The COVID-19 pandemic, rising inflation, and Russia’s war on Ukraine eroded the appetite for risky assets.
As a result, Bitcoin fell into a bear market cycle. By November 2022, Bitcoin dropped to a low of $15,600, a full 77% discount from its November 2021 highs. Meanwhile, Cardano fell to $0.295, down by 90% from its all-time high.
Market Leaders on crypto and dot come era
Amid Bitcoin’s topsy-turvy journey in 2021, several comparisons were made to the dot com bubble. In January 2021, Billionaire Shark Tank host, Mark Cuban, tweeted
“Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think BTC, ETH. A few others will be analogous to those that were built during the dotcom era, survived the bubble bursting, and thrived, like AMZN, eBay, and Priceline. Many won’t.”
Following LUNA’s crash in May, Bank of America said that the crypto sell-off “now rivals” both the dotcom bust and the great financial crisis.
When Bitcoin corrections continued to erupt in June 2022, Binance Chief Changpeng Zhao said –
“Some cryptos may drop in price, some projects may fail, but the technology will stay…“This is similar to the dotcom bubble…Many companies failed, but the technology stayed.”.
Lesson to learn from bubble crash
History shows that bubbles crash in a set manner.The stages begin with displacement, leading to boom and euphoria. The cycle ends with profit-taking and, eventually, panic.
Several bubbles have followed this cycle, such as the tulip mania of the 1600s, the Mississippi bubble of the 1700s, and the internet bubble of the 1900s. For the moment, however, it is unclear where Bitcoin lies in its bubble phase or whether a bubble exists at all.
Some argue that since the crypto revolution is yet to peak, comparing it to the internet bubble era would lead to inaccurate conclusions.
Crypto is yet to transform the industry as the internet has done. This is mainly why tech firms recovered immediately after the internet crash, whereas Bitcoin has faced multiple crashes since its inception.
Finally, Bitcoin’s bear market cycle is less isolated than the internet bubble crash. An argument can be made that global factors, such as COVID-19 and Russia’s war on Ukraine, have weekended investments into crypto more than the fundamental weaknesses of companies like LUNA and FTX.
Whether or not Bitcoin is in a bubble similar to the internet era, Changpeng Zhao’s message is an important takeaway. Regardless of market cycles, blockchain technology will live on.
This is why it’s critical for crypto firms to remain headstrong in the current crypto environment. Just like Amazon, those who survive the storm will reap massive benefits.
I have worked as a financial journalist for over 5 years, covering assets ranging from stocks, bonds and more recently, crypto. Strong supporter of blockchain technology and firmly believe that a decentralised system is key in shaping our future economy.