Is crypto a bubble? An analogy with the dotcom boombust

Following on from my previous post about Crypto-currency I wanted to share my thoughts on what I see may be in store. I would like to highlight that I firmly believe crypto-currency is here to stay and while the term “currency” is probably not right for this asset class I firmly believe in the value that is attached and there are definitely a lot of interesting applications. One thing that is scary though is that for all the talk of use cases and applications of crypto there is not that many active applications at present. So, the value and money we see today is primarly based on speculation of how these crypto-currencies could be used. I also believe money talks so when you see the market capitalisation of Ethereum is worth $75 billion USD at the time of writing I am sure that speaks for itself. Could the investment that made ETH trade up to 700 EUR per token be wrong? Could this be a giant bubble? Perhaps but I am sure there will end up being long term value in these projects but it is too early days to understand what that value might be.

An interesting analogy that could apply here could take us back to the dotcom bubble or the dotcom boombust that took place at the start of this century. Many people are too young to remember what happened but to sum it up people saw great value in the potential for ecommerce back in the late nineties and endless company’s were set up to build online shops and businesses. Investors were literally knocking at the door of any company developing an online shop or any kind of online business and willing to pour in vast sums. Between the years of 2000 – 2002 we saw the bubble burst as the idea was too early for mass adoption by consumers. Companies that were so promising mostly collapsed and those few that weathered the storm like Amazon and Ebay went on to become giants. But essentially the failure of the vast majority was not because the concept was wrong or there was little value in online shopping and ecommerce but basically the timing was wrong. People weren’t ready to enter their card details online and expect a package to turn up or a service to be delivered. Joe public simply had no faith in online shopping or any other kind of ecommerce back then. Shortly after, a couple of years on the likes of myself were just graduating from University and much more open to adopt online shopping and slowly ecommerce started growing and become trusted by the wider public. Now, online shopping has taken over shopping to a degree that has put some bricks and mortar stores out of business and the high street is now slowing down. Paid services you couldn’t conceive were sold and fulfilled online a few years back such as receiving counselling via an online video call are now in abundance.

So, with the above in mind it could well be that the crypto-currency market and its applications are very much like the dotcom bubble era. The crypto-currency applications may well be valid and the tokens may end up becoming extremely valuable and widely used to transfer value in some years to come but perhaps it is just too early right now and perhaps the bubble might have to burst before the application of this technology and value can become mainstream. Only time will tell.