So I made what I thought was a very insightful and potentially controversial statement on LinkedIn when I said; “the crypto craze is so much like the dot com bubble of the late 90s that…..it’s probably not”. Of course, no one commented. Maybe it was because I provided nothing to back up my assertion, or maybe because it was a comment to a merely tangentially related article. So, let me try again:
“The Crypto Craze is So Much Like the Dot Com Bubble of the Late 90s that……It’s Probably Not”
Of course it is in a few ways…. All right, I will concede a few points. The crypto craze is similar to the dot com bubble:
It’s based on a powerfully disruptive technology
Investors are piling in and causing asset prices to spike
There will be a HUGE correction (I promise, I just don’t know when.)
People are saying “this time it’s different”
But it’s not in some other (big) ways… One of the benefits of being over 30 is that you develop a bit of historical perspective. Whether you decide to deploy it to good use is up to you, but that is the topic of another article. Like many, I lived through the tech boom of the late 90s, working at dot com company that no longer exists. So it’s easy for me to see what is going on now and have a sense of déjà vu. But one thing that has nagged me is that while I can sit back and say to myself; “I know how this is going to play out”, I have a suspicion that there will be some different outcomes this time around.
I will back this claim up, but I’m also interested in the perspective of others on this. Regardless of what bubbles you have personally experienced – dot com, beanie baby, automotive (early 1900s), tulip…comment away. Here are my thoughts:
The asset in the late 90s was equity in an actual company with revenues (occasionally), employees, products, physical location. The asset this time around is a “coin” – a digital store of value, à la bitcoin, or digital token that eventually gives the holder the right to use the platform on which it will operate (e.g. filecoin). The holders of these coins/tokens have no stake in ownership in the underlying organization. What are the price implications of this? Well, as lawyers like to say; “it depends”. When the bubble bursts, will the landing be even harder because value this time is completely dependent on investor confidence, with no underlying assets to support it? It’s also possible that we are looking at a different dynamic, with investors increasingly confident in placing value in things that they cannot touch and feel.
Blockchain technology is going to disrupt, and completely reshape, entrenched industries like finance, blowing away incumbents. Not so fast. Look, I’m no “big company” fanboy, but I’ve spent enough time in the corporate world to know that many (not all) of the people who rise to the top of these organizations are pretty bright. So while someone like Jamie Dimon can insult the intelligence of bitcoin buyers, JP Morgan is also actively investigating the uses of blockchain technology. My thinking is that instead of the disrupters unseating the incumbents (Amazon vs bricks-and-mortar retail), in a lot of cases these incumbents are going to simply take the good parts of blockchain technology (the blockchain itself), develop proprietary applications, ignore the not-so-useful parts (the tokens) and say “thank you very much”. And many of the disrupters and their supporters may be left holding a digital wallet of worthless tokens.
Institutional money hasn’t arrived in much volume. For a variety of reasons, such as regulatory restrictions, due diligence requirements, and technical limitations, institutional money is not in crypto in volume yet. This is different from the dot come days, when VCs and banks were among those pumping up prices. Does this mean that the crypto run has a large second wind coming? Or that this money may never arrive in volume?
I look forward to feedback to my thoughts, and expanding on some of the ideas.