The history they say always has a way of repeating itself. These repetitive occurrences could serve as a warning or signal of an impending crisis or positive outcome, either way, it’s our only tool in predicting the future and cheating father time.
We have seen history repeats itself with the world wars and it’s devastating death tolls, the telltale signs of economic booms and crashes.
It goes on, but I would love to focus on the new big-time invention cryptocurrencies, it’s great speculation to shape the future, and if it is just another economic bubble, like the dotcom era.
What is an economic bubble
according to an article written by Will Kenton, these were his words on the definition of an economic bubble. “A bubble is an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.” This was referenced from https://www.investopedia.com/2019/jun30/bubble.
The above explanation of a bubble simply means, an invention or concept comes up that begins to attract so much attention due to its benefits, it becomes overrated and overhyped, investors begin to pump in lots funds into it hoping to reap huge profit in the nearest future.
At a particular point in time, it becomes inevitable that this invention or concept can’t keep up with the expectation of the future profits first predicted. This results in investors losing interest as it has come to the undeniable fact that this was hype. Then they begin to cut losses and sell off massive stocks, resulting in a huge decline of the worth of such invention or concept, hence the bubble burst.
The dotcom bubble
The dotcom bubble was a period of high market rise for internet-based inventions and companies.
This was when the internet was making its first entry into the market as the idea that could shape the future as we see it today. This bubble had a time frame from 1990-2002. Though the internet-based inventions finally came to stay, it ran faster than it’s shadowed earlier than, causing a great deal of money to be made and lost too when the bubble finally deflated.
Then it began its gradual rise as it was supposed to. During this period, almost any startup company with a dotcom at its end received huge fundings from investors. Advertisements were made vigorously, creating hypes that helped boost a humongous IPO (initial public offering).
Startup investors usually made their profits from the IPO, but public investors made a loss when these companies couldn’t keep up with the hype of great future profits they had promised. This went on little by little till it became a realization that the internet was indeed moving too fast for its shadows.
This bitter realization made investors cut losses somewhere between 2000-2002 leading to the great bubble burst. Mind you, there was a great profit made from 1995-2000. According to an article from investopedia.com written by Adam Hayes, the NASDAQ index rose to about 5048 from 1995 to March 10, 2000, and fell from that figure in the year 2000 to 1,139.90 on October 4, 2002, after the burst.
It took 15 years for the NASDAQ to regain it’s March 10 dotcom peak, which it did on April 23, 2015. It was after this burst that the internet assumed it’s normal economic growth. The first haste was just a bubble.
What is cryptocurrency
We all in one way or the other must have come across the word cryptocurrencies such as Bitcoins, Euthereum, Litecoins and so on. Cryptocurrency simply means the digital currency in lay man’s terms.
It is a currency that is made of a series of rigorous cryptographical codings in photonic optics and fibers. It isn’t physical and can’t be touched, seen or felt. This currency isn’t created by Central banks and isn’t subjected to rules by federal monetary institutions of the government.
In other words, it can’t be tracked or tasked. It is made possible by a peer to peer networks and makes use of blockchain technology. The peer to peer end network system makes it almost impossible to be forged once payment has been confirmed (which is almost immediately the transaction is made), unlike your regular bank transactions that could at times take days before confirmation is made, within which such time delay, anything could happen.
So let’s just say cryptocurrency is a step into the future as it suggests. Though this sounds like the perfect currency and is currently making a lot of waves these days. But for balance to be maintained, everything with pros must also have its cons, but that is not our major concern in this article today.
Similarities Between Cryptocurrency And The Dotcom
They both provide services through the internet. The internet is a vast medium of connected servers, it isn’t physical and everything is done from a digital device.
This makes it impossible to actually know the exact true account of anything posted unless physical evidence has been laid for confirmation.
One of the qualities of the internet is that it is highly overrated. No one really knows what is actually going on till the parties in charge decide to reveal the man behind the mask.
Just like the dotcom Bubble, cryptocurrency is the new idea that ushers in a new age in our use of currencies as we knew it.
The dotcom era provided easy access to a wide range of services through the internet, like, buying and selling products online, bidding online, spreading of information online and other services I can’t begin to mention.
It was a bright invention intended for the right purpose, but was growing too fast way ahead it’s time. Though we can’t say for sure if cryptocurrencies are running way ahead of their time, we can conclude for sure that when it comes to the huge currency sector, cryptos are really an amazing and revolutionary idea that could shape the world as we know it.
It combines ease with low cost of payments dues between transactions, higher security and gives us a really high financial privacy. The government can never know how much you really have (smiles).
The growth of cryptocurrencies since the first one (Bitcoin) made an entrance in 2009 has been highly remarkable with Bitcoin hitting a high of 6000 United States dollars to a Bitcoin.
Talk about impressive growth right?. You know what else had this growth, the dotcoms. A dot-com company could hit an IPO that would generate over billions in dollars just a few years after the invention of the internet. We can see the same growth happening in the cryptocurrency section these days.
This is the most common similarities between these two. We all speculated they would shape our century. The internet already shaped history once, but not before it offered the dotcom bubble. Right now it’s doing it again with cryptocurrencies just like it did with a dotcom.
We can only predict according to our individual perspective, if this high speculations of a future profit which investors are running into, is or is not a bubble. Right now cryptos are all over financial news headlines, different predictions of how it would permanently sign into our history in just a few years, and very few investment analysts predicting a longer time needed for it to crawl its way into normality.
Investors know that the time to make a jumbo profit is before an invention makes it’s way to the throne, but what if it breaks both legs on the way to the throne, first suffering a brutal injury before crawling the rest of the way and claiming that throne. If this happens, we would witness an outcry and pain from the losses witnessed as a result of the burst of a bubble.
Differences Between Cryptocurrency And The Dotcom
while a dotcom company is owned and invented by someone, a cryptocurrency is invented but owned by nobody. It is a free product that can be bought. It’s just like you decide to exchange your physical currency for a cryptocurrency. You don’t pay anybody for services rendered because it is yours.
So profit or loss is not dependent on the inventor’s actions but on the publics’ acceptance. If the public accepts and trusts the cryptocurrency for use and business transactions, it blossoms. But for any reason, they should doubt it’s credibility, it’s acceptance drops so does it’s value.
This doesn’t mean it won’t still gain worldwide acceptance in the future. Unlike the cryptos, owners’ mistakes could affect a dotcom company. In essence, cryptocurrencies’ growth rate depends on how ready the public is to accept it.
This is one of the features of cryptocurrencies that serves as both a pro and a con. The presence of a third party means a third medium monitors our transactions to prevent scams and make sure transactions are done rightly.
The exact amount owned is known to the third party, movements of money and stocks are monitored and recorded by the third party and any fraud means you can meet the third party for reimbursement.
This prevents privacy and ensures you get taxed for every penny you earn. This also gives the third party the right to make certain decisions that may favor you or not. This also means you have to pay the third party charges for keeping your records, and the charges are not minute.
Take for instance the increase in charges in POS transactions by the Nigerian central bank this year. Not many people are happy about this but our hands are tied. This is not the case with cryptocurrencies, no party monitors your transactions, it’s just between the one who makes the transfer and the one who receives.
Now if on any account, you give your wallet password to the wrong hands, your crypto balance could be wiped out and there is no getting it back. If you transfer a cryptocurrency to the wrong person, and they refuse you a refund, it’s gone too.
Dotcoms were accepted worldwide with nothing to hide, cryptocurrencies, on the other hand, have not been legalized worldwide. Cryptocurrencies are still banned in some countries, so you can’t use it to purchase goods and services in such countries.
This could be due to the fact that cryptocurrencies were first used by dark web and black-market customers who didn’t want the government to track them. Another reason could also be that such government feared the fact that they couldn’t regulate it, so it seemed sinister.
with dotcoms, most investors risked it all. Years after that, I think investors learned a lesson and are trying to play it safe with cryptocurrencies. This may be the reason most giant tech companies are still observing before they decide to use cryptocurrencies to perform major or most transactions.
There is no such thing as an IPO with cryptocurrencies because unlike shares, they are not owned by a private body willing to sell to the public. Cryptocurrencies are not subject to any firm, they are owned by nobody and everybody. So there can never be an IPO.
it isnt quite clear if we are about to witness a bubble, but I am quite sure cryptocurrencies, especially the likes of Bitcoin has come to stay. Some great minds in the investment world, like Warren Buffet, calls it the next dotcom bubble. But it has endured this long and could still prove professionals wrong. What do you think?