Can we compare the Cryptocurrency market to the dotcom market of the 90’s? I believe we can and history proves that all new markets behave similarly.
Every new market reaches a point where hype and speculation value meet intrinsic value. Analyzing the past always helps us prepare for the future. In the late 90’s dotcom companies were popping up daily in the Silicon Valley where I was employed by a start-up company. I remember three software start-ups launching in our building that raised $50,000,000.00 each without even having a product tested. Needless to say, they all went out of business during the crash and their investors lost everything. It is very difficult to measure value in any new market since there is no revenue, sales, or any typical historical events to use. The railroad markets of the 1800’s experienced the same type of hype and fomo that drives the prices of the dotcom and cryptocurrency markets in their infancy. It was nicknamed “railway mania”.
The big differences between the cryptocurrency market and the dotcom market of the 90’s to be aware of are as follows. In the crypto world when you buy “currencies”, you are investing in a technology not a company, so the adoption rate is really the only key to setting the value. Most Ethereum based tokens have a specific use within the company so buying them for any other reason may not be the best play. Either way, you are not purchasing stock in a company when buying these tokens. For example, SALT token can be used on the SALT lending platform to pay your monthly payments and interest on a loan you have received at a current value of $27.50. If SALT was a company trading stock on a major exchange, you would see that it would be obviously overvalued since the total they have lent is under 30 million dollars and they have a current market cap of over 250 million dollars. Would you pay 10 million dollars for a business that had an annual income of 10 thousand?
The dotcom bubble was mainly a North American phenomenon and hit a total value of about 5 trillion dollars 17 years ago before it “burst” in the early 2000’s. The cryptocurrency market cap is just over 400 billion dollars and is a global phenomenon so comparing the two would tell us we have a long way to go before we reach the bubble stage. If you invested in Intel at the peak of the bubble you would still be waiting to reach a break-even point now 17 years later. Most of the notable tech companies stock took over 10 years to get back to the value they were at the peak of the dotcom bubble.
So use this opportunity in a brand new market to pick projects you believe will be widely adopted and buckle down for the ride, the past shows us it will be a bumpy one. Hype and fomo are the only major factors in setting value to new markets and intrinsic value always comes into play eventually. That is when the “bubbles” tend to burst so if you feel like something is overvalued, it probably is.