Investing In Cryptocurrency

Many of those invested and interested in the cryptocurrency markets were around for the rise and fall of the Dot-com era and birth of the widespread public internet. The Dot-com bubble burst is constantly being used in arguments that cryptocurrency will suffer the same fate, bringing the markets to a crashing close. Are we early to the party, or just in line for disappointment?

Boom And Bust

It is safe to say that anyone who has dabbled in the cryptocurrency and blockchain space for even a small amount of time, has read or been told: “It’s just a bubble, it’ll burst sometime soon.” Cryptocurrency – and more specifically, Bitcoin – is often likened to the Dot-com bubble that lasted from 1995 until 2001. But does this mean that it is inherently a bad thing, or are we just counting down the time until cryptocurrency meets same fate?

As the world marched across the threshold into the Age of Information, nobody could have fathomed the tremendous changes that were to come.

Investors flocked with open checkbooks to anything and everything that was pitched as an online business. Similarly, billions of dollars are being poured into the growing number of ICOs (Initial Coin Offerings). In the first half of 2018, more than $10 billion has been invested in ICOs – nearly three times the amount invested in all of 2017. The frenzy behind ICO investing shows no signs of abating, despite regulatory uncertainty.

Yoni Assia, CEO of eToro, told Business Insider:

You have something that you’ve never had before, not even in the dotcom bubble: if you have a genius idea now and you put a whitepaper on it and suddenly you have 100,000 millionaires reading it and saying ‘hmm, that’s a really good idea.’ If 1,000 put in $10,000 — which is not a lot of money for those 100,000 — you just raised $10 million for your ICO. That scale has never happened before.

Of course, as with any investment, there are risks. The ICO landscape is chock full of “projects” that amount to little more than an idea, a whitepaper, and a promise to bring that idea to fruition with investor funds. The reality, however, is that the vast majority of ICO projects will never get past the startup phase.

Assia notes:

Ninety-five percent are going to end as nothing because that’s startup funding.

Ethereum co-founder Joseph Lubin shares Assia’s sentiment. Speaking at a press conference at MoneyConf in Dublin earlier this month, Lubin stated:

If you look at the dotcom boom and bust, there were so many of the same issues back then. So much money invested, lots of money lost, lots of failing projects.

soap-bubbles

In It To Win It

While the Dot-com boom – and subsequent bust – should serve as a cautionary tale about throwing money willy-nilly at projects without doing your due diligence, it is important to remember that the ‘bust’ was only relative. The idea of doing business online didn’t go away with the Dot-com bust. What did happen is that weaker projects – those that served no real purpose or were simply money grabs – fell by the wayside.

If we look at the companies that survived the bubble – companies like Amazon, Google, Apple, and countless others – we can see the countless ways that they have influenced and changed the way many of us live our daily lives.

It would not be naive to think that a handful of projects in the cryptocurrency space will also do the same. This ‘survival of the fittest’ mechanism could bring unimaginable and exponential innovations to our lives. Earlier this year, venture capitalist and Bitcoin advocate Tim Draper passionately commented on the magnitude of impact that cryptocurrency could have on our lives:

This is bigger than the internet. It’s bigger than the Iron Age, the Renaissance. It’s bigger than the Industrial Revolution. This affects the entire world and it’s going to be affected in a faster and more prevalent way than you ever imagined.

This time around, investors and developers are equipped with newer and faster technology, as well as a bit of hindsight.

Increased competition could certainly mean higher profits for those who can adapt to the new markets while not making the same mistakes as those before us.