What the dot-com bust can teach us about the crypto crash

Benjamin Graham, an economist and the father of value investment, once compared market to a voting system in the short-term and a weight machine in the long-term. Graham would likely have been skeptical about crypto and its inherent volatility if he had lived to see it. However, his economic theory still applies to certain aspects of the market.

The blockchain space has been almost exclusively a “voting machine” since the advent of altcoins. Many projects have been financially unsuccessful and even harmful to investors and the entire space. Instead, they have turned crypto into a memelord contest of popularity, and that success is hard to understate. Sometimes, the competition is about who can make the most of crypto in the future. But whether that future is actually here is another matter. Often it’s based on who markets themselves best, through sophisticated-looking infographics or ridiculous token names and a series of associated “dank” memes. Whatever the reason, most projects’ success is dependent on speculation. Graham was referring here to the “voting machine”.

What’s the problem? It seems that the space would be a great environment for developers and founders. Many people who have been able to make life-changing fortunes while playing the game are well-informed. It isn’t. These investments have been a success at the expense and often by the expense of untrained, badly-guided investors. The majority of this value is lost to the so-called “vaporware merchants”, who only promote misplaced value or broken promises. Where is Graham’s weighing device, and when will its force begin to take effect? It’s happening right now.

Related: The decoupling manifesto – Mapping the next stage of the crypto journey

The crypto crash vs. dot-com boom

Our historical precedent is the dot-com bubble. These two spaces share an exuberance in trying to fit developing tech into problems that don’t exist, excessive capital access, ambitious promises without any hard tech backing them and, finally, a gross misinterpretation of what all this even means (see domain claims for broadcast.com, pets.com, and radio.com).

These companies never gained popularity. They had clear names. Why not choose a point-blank, even if most investors don’t know what they’re buying but still want to be part of the party?

Related: Are you still comparing Bitcoin to the Tulip Bubble? Stop!

The numbers are also very similar. These numbers are quite similar.

The dot-com industry reached its peak in 2000 at $2.95 trillion. Inflation would have made that $4.95 trillion. It then plummeted to $1.195 trillion. The total crypto market cap reached $2.8 trillion if you account for inflation. It would have been $1.67 trillion if inflation were taken into account. However, it is now at $1.23 trillion. It would be $0.073 trillion if inflation were to be taken into account. The delta between the peak and the current crypto bubble is 56%.

These numbers will be affected by inflation, but consider that Apple alone has a market capitalization of $2.45 trillion as of the writing of this article. After inflation adjustment, a single stock in the tech sector has the same market capitalization of all crypto and half the dot-com sectors.

Volatility is the result of Velocity

It’s not as bad as it seems. Imagine if the tech sector had reached its market bottom in 2003. Many believed that the tech sector was in its final days. The numbers mentioned above can (and should!) be taken with a grain of salt. However, one should remember that history doesn’t always repeat itself exactly. Instead, it rhymes. Since 2016, I have seen the blockchain sector move at a faster pace than any other financial sector. It takes far less patience to endure a crypto downturn than the waiting period between 2003-2010.

The crypto market has been experiencing a “black swan” event, where it has both received the shortest support from macroeconomic forces over the last few months and also experienced another “black straw” event like Mt. The 2017-2018 crypto winter, and the 2020 crash were all caused by Gox. It was the Terra crash this time.

Each of these events brought about doom, destruction, plague, and death for the average investor. Yet, developers continued developing, miners continued to operate, and smart investors continued to invest. Recent estimates show that funds like LayerZero, StarkWare, and a16z raised $15 billion. Why? Why? It is possible for one of these data sets to be affected by it while another has won it. These individuals and entities don’t feel guilty about beating you. They don’t feel guilty about making you lose money. They don’t feel anything until they have lost money. This means that emotion must be eliminated from decision-making.

Related: The decoupling manifesto – Mapping the next stage of the crypto journey

What the Terra saga has to do with you and what’s next

The Terra crash is likely to continue to wreck havoc on your portfolio, and even your peace of mind. The ever-present stoic investor will continue to rear its ugly head. They sold the top just weeks back and let you fall to a 70% loss. But don’t panic. Take a look at the history and potential implications of the internet. It is difficult to know exactly where crypto is in its market adoption cycle and when it will truly cut the fat. It does appear that we are close and things are moving faster than in the dot-com industry.

This makes it easy to create intelligent long-term investment plans. It’s especially simple if you consider the increasing adoption of Web3 by average users. If broadband was the catalyst for massive user growth, then I believe a simple-to-use Web3-based wallet that doesn’t require any setup to interact with multiple blockchains would be crypto’s equivalent incident. Robinhood announced recently that it will soon release a Web3 wallet that is simple to use. The floodgates will open once a solution like this is available that allows Web3 interaction in just a few clicks.

It’s then a matter of determining the market capitalizations for the top 20-30 crypto blue chips. Then, you can buy and wait. There are no guarantees. Investors have less upside the closer markets get to maturity. It is best to be patient and to approach investing in new spaces like these with a clearly defined strategy.

This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Axel Nussbaumer, Blockmetrix’s vice president of digital assets management is based in Dallas. He is also the founder and CEO of Blockmetrix. He studied business at Southern Methodist University before becoming an entrepreneur in 2015. He switched to blockchain technology in 2016. His participation and early interest in the space led to numerous successful investments. He also has a wealth knowledge and experience that he has shared in publications like Forbes and Nasdaq.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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