Crypto Bubbles Not Alone In Bursting Despite Strong Fundamentals
Many in the traditional financial markets decry cryptocurrency due to its volatility and point to the 2018 crash as proof that crypto is somehow alone in being a fickle good for true investment. What many fail to remember is that cryptocurrency has gone through multiple boom and bust cycles, much like many other markets have endured and for proof of that, look no further than Amazon.
The current parabolic rise of Bitcoin has gotten the bears out fo their hiding places predicting another crash very soon, and ravenously licking their chops at the expected windfall. However, much calmer heads are saying that while a drop is to be expected, the prices will normalize and the bull market will push on.
Knowing the ultimate outcome requires a degree of skill and luck that is unmatched by any currently alive – after all, the greatest investor today is known for making long term bets on companies that have a solid business reason for existing, not on panicking in short term dips. That investor? Warren Buffet. However, even the legendary investor himself likens Bitcoin to the Tulip bubble – a notorious case of speculation run amok and an asset with little to no value making fools out of a lot of market participants.
However, there is a much more recent example of this happening, and it was not even 20 years ago when it reminded many in the market that no one is perfect and that history does have a habit of repeating itself to a certain degree.
Amazon Rises High Still Falls Flat Due To The Market
Amazon is a textbook case of a strong company that has solid fundamental business acumen behind it that can fall due to external market pressures. The retail giant experienced heightened parabolic growth in its early years due to the dotcom bubble and when the bottom fell out of the market and investors started panicking and when the dust cleared from the tattered battlefields of the NASDAQ, not even the solid companies were left completely whole.
Amazon was one of those companies that lost a good chunk of its market cap after the dotcom bubble burst. In fact, it lost almost 95% of its value. It is not considered a blue-chip stock, that can weather any storm, but some data might paint a more troubling picture. It currently looks like it is at the very cusp of another parabola and if the right circumstances come into play – it could reach price levels that weren't seen since 2012.
That 95% in Amazon's share price is similar to another asset, very similar. It matches Bitcoin very closely in how it grew and how it crashed. New technology being embraced by a select portion of the population that has reached a very high price after becoming a dominant player in the industry…
The two are more similar than many would like to admit. Yet cryptocurrency keeps getting slammed as a passing fad, a revival of the tulip mania that hit Europe a few hundred years ago. Much like how internet companies, with little to no physical assets, were seen in the same light after the dotcom crash.
Be Wary Of Calling The Market
— Charlie Bilello (@charliebilello) May 8, 2019
The lesson of Amazon and the dotcom bubble is very similar to the current state of cryptocurrencies should be a warning to all investors who might find themselves in the position to start selling in a panic when the next bust cycle comes around. Amazon stock has never been higher, and anyone who sold their standing in Amazon to beef up their portfolio with more traditional stocks was the bigger loser over time.
In the same way, with Bitcoin edging ever close to record highs, whoever decides to buy into it right now should keep the same thing in mind. If there is an end to the parabola, one that makes people panic – don't be one of those people. Bitcoin is a token with strong fundamentals. There is an active community, a large pool of miners that functionally guarantee proper decentralization and more than enough developers to push the king of cryptocurrencies further than any other.
Thinking of cryptocurrencies and the technologies that power them more like businesses than like currencies is the best solution for long term investment. Institutional investors are starting to come out of their shells and are looking not just into the blockchain, but into Ethereum and Bitcoin as strong contenders for their portfolios. Only a fool would bet against the biggest investors and hope to win.