Many say that the dot-com bubble has changed and that the year 2000 was a different time. While this is inherently true, similarities remain. Back then, most people did not understand what the internet really was. The same can be said about cryptocurrencies. The hype was that it was the future, and people were not necessarily wrong. Many say that blockchain, the technology behind these currencies, is the future. The issue with the internet in those days and with dot-com companies opening daily and being overvalued is like cryptocurrencies today and how most were ridiculously overvalued. As with the dot-com companies, people invested in fly-by-night startups without understanding valuation. Others came late and invested when the prices were high. However, was the internet dead? Today we laugh at this question.
The Resulting Crash
Understanding the Scaling Problem of Cryptocurrencies
While bitcoin dropping 75% did not have the catastrophic effect on the economy, as was the case with dot-com companies, the result did question the future of the currency in the global marketplace. It did, however, affect the price of Litecoin and other cryptocurrencies. But, as with the internet-based startups of the early 2000s, these must be evaluated and valued separately as some survived and thrived. Therefore, investors must look at what each company does well and what they offer the market. Remember that online bookstore named Amazon? How about eBay and Paypal?
Cryptocurrency 101: Security Tokens Explained
No one would discard these companies now, and all survived the bubble burst because their valuation was based on industry need and a market direction. The Amazons of the world really were the future, and this is not arguable today. Therefore, those who thought stocks, or in this case bitcoins, are worth what someone else is willing to pay for them, was right. When those types of people who are willing to pay ridiculous prices dried up, those who bought at a high price could not sell to anyone else willing to pay an even higher price. But, this does not mean that blockchain technology is hype or that cryptocurrencies are dead. This just means that the market corrected irresponsible and bad behavior.
The Naysayers and the Future
Coinbase CEO Brian Armstrong Sees 1 Billion People in the Crypto Ecosystem in 5 Years
Many of those suggesting that cryptocurrencies are dead are focusing on a report by Deloitte that indicates a death rate of about 90% of projects on the GitHub code repository. Nevertheless, these projects are based on startup ideas that implement the technology or support cryptocurrency to some degree. Furthermore, the death rate of said projects is not much more than the standard death rate of any startup, which according to a Harvard Business School report is roughly 90%. Therefore, it is difficult to predict the death of an entire industry based on the normal statistics of companies. Sectors are generally more resilient than startups, and bigger or more robust organizations will absorb market share.
Even with the collapse of the price of Bitcoin from the 20,000 dollar a coin peak, the price is still 80% above its value from the year before. The probability that the appraisal of cryptocurrencies returns to previous highs is relatively low. It may also be possible that the volatility of the coins remains for the foreseeable future. Nevertheless, volatility does help those who are day trading bitcoin. Moreover, these coins and the concept behind cryptocurrencies, which is blockchain technology, are attracting the traditional financial sector. Many countries are looking to incorporate and regulate the currency to take advantage of the benefits that these provide. So, while the sector had a rough year, it is hard to declare it dead when the technology itself is promising. The fact is, the industry has survived a major crash and is consolidating, similar to the days after the crash of the dot-coms.
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