Comparing the Dot Com Bubble and Bitcoin

Should We Expect an Eventual Crypto Crash?

For a little over a decade now, Bitcoin has been a disruptive game-changer on the global financial stage.  As adoption grows and digital currencies gain greater legitimacy, popularity and viability, governments are sitting up and taking notice. Legislation is being written, financial institutions are looking for ways to get a piece of this increasingly lucrative pie and the average investor is also adding digital assets to their portfolio.  The crypto market just keeps growing and is showing no signs of slowing down. 

While this all seems like great news. Some people are having flashbacks to the days before the bubble burst in the early 2,000’s and are finding it hard to trust that Bitcoin’s success is here to stay. 

What happened with the dot-com bubble?

Internet-based companies saw huge profits in the 1990’s and the values of technology stocks rose at an incredible rate. There was a bull market, with investment flowing in and new tech companies being added to the NASDAQ  by the day. Investors were throwing money at startups, before any profits were to be seen and stocks were gaining in value without these companies necessarily having the ability to generate revenue. 

Investors were frequently overvaluing tech stocks and with all the hype, the market ended up with unrealistic, over-optimistic assessments. This led to major panic- induced sell offs and the bursting of the bubble.

The dot-com bubble vs the cryptocurrency market

At first glance, when compared to the dot com bubble cryptocurrency looks to be experiencing similarly sky-high growth that some fear may  be equally unsustainable. Crypto is also an internet- based investment that is particularly volatile and is founded on emerging technology that is still in the process of establishing itself. Also, whether you are investing in Ethereum, Ripple or Bitcoin cryptocurrency market developments are exceptionally fast paced, as was the tech boom 30 years ago.

Comparing the dot-com bubble and bitcoin, we can see that while there are some clear similarities the differences are significant. First of all, market analytics have had a couple of decades to mature and investors have learned hard lessons from their experiences with the tech stock boom and bust.  In contrast to the dot com bubble cryptocurrency has far greater sustainability. To see why, let’s take a look at the cryptocurrency market today.

What is happening to the cryptocurrency market?

The cryptocurrency market is thriving. Anyone asking “how big is the cryptocurrency market?” will find that the answer has changed before they’ve even finished the question, as it is growing at an astounding rate. Currently, there are around 5,000 cryptocurrencies in circulation and the trend shows no signs of slowing down. 

What is a cryptocurrency bubble and is the cryptocurrency market crashing?

What is a cryptocurrency bubble? A bubble is an economic cycle where the market value escalates at an incredibly fast pace and then the inflated market price is followed by a rapid drop in value. So, what is the likelihood of a cryptocurrency bubble? Is the price of digital assets going to hit its peak and then crash? For a variety of reasons, the answer is no. 

Cryptocurrency is here to stay. It has gained a great deal of legitimacy and is in the process of being regulated with client protections and issues of taxation starting to be legislated. Even the most cautious and traditional investor will commonly have a couple of percent of their capital dedicated to digital assets, which are now a staple of any diversified portfolio. It is even a familiar part of many retirement funds.

While Bitcoin is volatile and the price is going to continue having some dramatic peaks and troughs, the overall value of the asset is still rising, and Bitcoin keeps proving its staying power. Since there is a cap on the amount of Bitcoin that can be in circulation, it is also inflation-proof.

Expectation from the cryptocurrency market

The future looks very rosy for Bitcoin and the many other digital currencies that have followed in its wake. The cryptocurrency market was worth USD 1.03 billion in 2019, within just one decade of Bitcoin’s introduction. By 2024 the market is projected to reach USD 1.40 billion and then to hit USD 1.758 billion, by 2027, growing at a CAGR of 11.2% over the forecast period.  The growth expectations for the crypto market are incredibly high. So, what is it that makes analysts so sure that we are not in for a repeat of the dot com disaster? 

When we think bitcoin cryptocurrency market success, we think not only of Bitcoin, but also of its underlying technology- blockchain. The two go hand in hand. There is intrinsic worth to crypto. It has genuinely valuable real-world applications that is a strong indicator of future longevity.

The emergence of Bitcoin has permanently changed the way we think about currency and banking, the cost and speed of transactions and the potential for independent control of, and access to, our own funds. It is also changing what we perceive to be the costs and limitations of financial services and this revolution is gaining ground with every passing day. Cross-border transactions are cheaper and faster, with no middle-men, and there is no government involvement in the transfer of personal capital. 

Will BTC keep booming or is this a bubble that’s about to burst? If you are wondering whether Bitcoin shares any characteristics with the bubble, the answer is undoubtedly, yes. Bitcoin volatility clearly echoes that of tech stocks in the 90’s but there is real value behind both the coin and the technology on which it is based.  Only time will tell whether or not we are in a Bitcoin bubble. However as cryptocurrency investment gains popularity, it seems to be coming closer every day to passing the threshold of mainstream adoption, and cementing its position as a highly valued asset at the core of an evolving  global financial ecosystem.