Cryptocurrency Crash of 2018 vs Dot-Com Bubble; Are ICOs Helping or Hurting?
How ICOs Are Preventing Cryptos To Become Another Dot-com Bubble
The crypto market’s meteoric rise had many, especially those from traditional investing, calling the phenomenon a “bubble.” Since people try to make sense of new events using the past, the crypto space has been commonly viewed through the lens of the “dot-com crash” in the late 1990s- the early 2000s. Hundreds of companies met their ends in the aftermath of the so-called “dotcom bubble.”
Currently, it seems like every talking head, distinguished investors, or self-proclaimed thought leader has compared the current crypto market to the dot-com bubble of the 1990s. Sure, the anatomy of the markets is similar: speculation surrounding a new technology leads to sky-high valuations for companies. Most people haven’t taken into account one major factor that prevents crypto ecosystem to go down the path of the dot-com crash. That factor is ICOs.
ICOs were launched by J.R. Willett for Mastercoin. Willett’s novel fundraising method bypassed traditional venture capital fundraising by allowing people to send bitcoin to a wallet address in exchange for new tokens that represented ownership in the platform he was developing.
Now, ICOs have raised nearly $20 billion, with over 90% coming in the last year. To date, the ICO craze has been a hallmark of the cryptocurrency bubble. Nearly 80% of offerings were labeled scams in ICO advisory firm Satis Group, but that hasn’t unnerved investors.
Imagine if, during the dot-com bubble, a person didn’t have to find a stockbroker or register with regulatory agencies. Imagine if language and knowledge hurdles that existed between countries were eliminated, allowing anyone from any country to invest in Pets.com or Amazon with no added hassle. Finally, imagine if there was a global resource that made people more connected and knowledge more portable. In this scenario, the barriers to investing in stocks are a fraction of what they actually were.
That’s what is happening with cryptocurrencies right now. It takes a few minutes to sign up on an exchange, and you can start trading a couple days later after being verified. Exchanges exist in nearly every country in every language. In addition, any Internet user can learn about cryptocurrencies relatively easily. Social media has and will continue to exacerbate the hype around crypto. When more people participate in a speculative market, both the run-up and the bubble burst become more severe.
Even though cryptocurrencies might be in a bubble, they are not a fad. A bubble is necessary to build the infrastructure that will one day support an entirely new asset class. ICOs are certainly damping the effect of this expanding bubble.